Recently some of the ferrochrome market participants suggested that international ferrochrome prices should be based on the Chinese Tender Prices.
Over the last couple of years, the bidding price in China has become an important part for the global FeCr industry and markets started to follow each other and correlate. Despite that, using domestic prices in China for LT formula commitments could create difficulties for both suppliers and consumers, since the rest of the world will be exposed to China domestic FeCr market pricing, which is influenced by some country specific factors:
- Currently it is disadvantageous for Chinese ferrochrome producers to export, due to export duty and nonrefundable VAT. If these duties are eliminated, the teneder price will immediately increase, since Chinese domestic producers will be more competitive on the international market, thus putting more pressure on the overseas prices and vice versa.
- Secondly the Tender Price in China generally closely follows domestic FeCr COP, which is a function of Cr ore import price to China. That price in turn is not directly related to integrated FeCr COP of international suppliers. If export duty is implemented on Cr ore from the supplying country, the Chinese domestic FeCr COP will immediate increase, thus driving Tender Price higher. While on the other hand the supplying country will have domestic COP decrease with the support of export duty.
- Third is ongoing issue with environmental shutdowns in China, which affect both the stainless steel and the ferrochrome industry. Now any environmental regulations will have an immediate affect on the global market directly, rather than a steady discovery of whether additional or new shutdowns will be effective.
Above three factors are most evident ones why this will only make the pricing system even worse than today. On top there are some more like unknown number of bidders, not always disclosed volumes of bidding, different seasonality and other specific domestic issues. The bidding price is relevant for the world market but straightforward usage outside Its own region is not a solution and will create a lot of additional risks for the industry.
All in all, the recent development is another evidence that FeCr market is in a desperate need of liquid pier to pier settlement mechanism with financial responsibility of participants, pricing transparency and possibility of hedging, similar to what exist in exchange traded products.
Jan 2016 to Jan 2017: MB HC growth of 78%, China Tender growth of 109%
Jan 2017 to Jan 2018: MB HC decrease of 9%, China Tender decrease of 30%
Jan 2018 to Jan 2019: MB HC decrease of 24%, China Tender decrease of 6%
Jan 2016 to Jan 2019: MB HC growth of 23%, China Tender growth of 39%
Q1 2016 to Q1 2017: EU Benchmark growth of 79%, China Tender growth of 101%
Q1 2017 to Q1 2018: EU Benchmark decrease of 28%, China Tender decrease of 21%
Q1 2018 to Q1 2019: EU Benchmark decrease of 5%, China Tender decrease of 11%
Q1 2016 to Q1 2019: EU Benchmark growth of 22%, China Tender growth of 42%