The Q2 2019 European Benchmark has just been settled at 1.20 USD/lb, an increase of 7.1%. The announcement came ahead of Chinese ferrochrome bidding prices for April, thus making the European Benchmark the leading indicator for the ferrochrome market this time.

Some market participants see this increase being on the high side, while we think it’s on the low side or rather moderate, giving today’s market conditions:

• Continuous load shedding in South Africa has led to a ferrochrome production decrease by 20%
• UG2 chromium ore price has increased since the beginning of the year by 20%
• CIF China price has increased by 5%
• China Tender Prices increased by 1%, pending a bigger increase in a few days
• China spot ferrochrome prices increased by 7%
• One more important change is a VAT decrease in China from 16% to 13%. This means from now on actual price ex-VAT should be adjusted by 3% up, compared to previous domestic price, which is always indicated including VAT.

In other words, a 7% increase in spot price, including VAT, is an equivalent of a 10% increase ex-VAT or CIF. Thus, one can see that the Benchmark increase in Q2 was not very drastic, but in line with other price hikes on the low side.

What remains to be seen is a bidding price increase in April, which is expected to be around 300 RMB/t, taking into account the above consideration of 3% VAT adjustment. Let’s see, if it will be enough to cover increased COP in China and apparent ferrochrome shortage from imports, or more increase will be expected for May.