Truck tire will not fix town car broken wheel

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%

Mouse or Elephant — looking forward to Q1 2019

The end of December is approaching, and the ferrochrome industry is preparing for the Q1 European Benchmark announcement.

With the current price downturn in all the major markets, it seems reasonable that the benchmark price will go down, the question is by how much?

There are three major prices whose dynamics should be considered in European Benchmark settlement: China Tender Price, CIF Shanghai and MB HC FeCr.

We used all the above prices to calculate different scenarios for possible Q1 2019 European Benchmark.

We used Q4 vs Q3 price change and applied the corresponding drop to Q4 Benchmark

EU Benchmark vs China Tender

Benchmark Scenario: BM equals 1.20 USD/lb based on the percentage drop between Q3 and Q4 Tender Prices
Q1 2019 average Tender Price forecast 7000 RMB/t.

EU Benchmark vs CIF Shanghai

Benchmark Scenario: BM equals 1.18 USD/lb based on the percentage drop between Q3 and Q4 CIF Shanghai
Q1 2019 average CIF Shanghai forecast 0.8 USD/lb

EU Benchmark vs EU MB HC

Benchmark Scenario: BM equals 1.03 USD/lb based on the percentage drop between Q3 and Q4 EU MB HC FeCr prices
Q1 2019 average EU MB HC FeCr forecast 1.05 USD/lb

A big difference between EU MB HC FeCr and the other two prices is attributed to decreased premiums in the European market for HC FeCr compared to Charge Chrome. This is mainly due to increased competition in Europe.

A wide gap between prices of different indices for same product-ferrochrome, indicates ineffectiveness of the pricing mechanism.

Above analysis has a wide range of potential results from 1.03 to 1.20 and the average from three scenarios comes to 1.14 USD/lb. This might be a reasonable level, given the market situation and winter slowdown for the industry. The level also corresponds well for CIF Shanghai and Benchmark average historical spread.

EU Benchmark vs CIF China South African HC FeCr

The average quarterly difference from 2015 till now is 0.35 USD/lb. Based on above forecast for Q1 2019, the difference comes to 0.34 USD/lb, which in line with the historical data.

Trade war pause

Ongoing trade negotiations between USA and China are decreasing the risk of full-out trade war. The temporary stop on further increases in import duties are improving the sentiment for the international trade. This sentiment could help to improve ferrochrome prices in Q1 2019.

Bloomberg reported that China will decrease or even eliminated its import duties on the US made cars This will give a boost to US car manufactures in the world’s largest consumer market. As the result the US domestic car production should increase thus increasing demand for stainless steel products. That in turn should even further improve USA demand for ferrochrome and ferroalloys. From the other hand improved demand might attract even more pressure from supply side as it has already happened in the second half of 2018.

FeCr Supply Factors Overview November, 2018

1. ESKOM has been in denial about coal cliff

  • ESKOM is now running short on the coal stocks at the major powerplants. According to South African news sources and Ferroalloynet.com, some of the plants have around 10 days of stockpiles, while the minimum required is at least 20 days. ESKOM has warned that the possibility of nationwide power outages is increasing.
  • This problem continues to undermine governments attempts to attract more foreign investments in the country. Since such uncertainty most likely will push investors in the opposite direction.
  • This issue is growing on the weekly basis and continues to create major obstacle for the ferrochrome industry. Without stable supply of electricity, possible power shedding and outages, the industry most likely will continue to shrink at least for a short-term.
  • As the result, that might increase production and shipments of chromium ore, since its production is less electricity demanding.
  • To be a building block for the economy and the ferrochrome industry ESKOM will need to address the main problems and implement fundamental changes to solve them.

2. High-carbon Ferrochrome capacity release Chinese provinces in November 2018 (source: Ferroalloynet.com)

  • Guizhou November output is expected to be around 27,900 tonnes, which represents 34% of the total monthly capacity. The drop from October is around 2%.
  • Sichuan November output is expected to be around 33,000 tonnes, which represents 24% of the total monthly capacity. The drop from October is around 17%.
  • Hunan November output is expected to be around 13,000 tonnes, which represents 23% of the total monthly capacity. The drop from October is around 17%.
  • Northwest Region November output is expected to be around 21,200 tonnes, which represents 25% of the total monthly capacity. The increase from October is around 8%.
  • Shanxi November output is expected to be around 36,900 tonnes, which represents 40% of the total monthly capacity. The increase from October is around 2%.
  • There is no final output data for total Chinese ferrochrome production for November, but it is likely that the total output will decrease.
  • The obvious factors for the production slowdown are decrease in China tender prices for November, which put a lot of meltshops in a disadvantage due to high cost of production and ongoing environmental shutdowns.
  • Additionally, the above-mentioned provinces house a considerable amount of small ferrochrome meltshops. There is a chance that after environmental inspections some of them won’t return to the operations.

3. Despite decrease in ferrochrome production in South Africa and China it remains to be seen how the supply/demand balance will be affected. The question marks are the stainless-steel production further direction during slower winter months, environmental shutdowns in China and drop in stainless-steel prices on the background of various trade tensions concerns.

4. In these circumstances there are no good reasons for upward or downward movement for the ferrochrome market, unless one of the above factors starts to outweigh another.

Weekly Market Overview: October 22-26, 2018

Eskom wants to increase electricity prices by 15%

  • This is a continues issue that plagues South Africa, despite recent price hike, Eskom still wants to increase it, 15% annually for the next 3 years
  • Price hikes coupled with shortages of electricity and blackouts is one of the main reasons why big portion of South African ferrochrome capacity is either idled or operates at the low utilization rates
  • On the other hand, if NERSA (National Energy Regulator of South Africa) approves these price hikes, it most likely will force ferrochrome producers to hike their prices for both ore and FeCr

TISCO lowers HC FeCr bidding price for November 2018

  • TISCO was the first major stainless-steel mill to announce November prices, with the price being down 100 RMB/t (6750 RMB/t)
  • This price drop can be attributed to some domestic Chinese factors:

    1. The upcoming environmental measures most likely will affect both ferrochrome producers and consumers. It looks like TISCO believes that stainless steel mills will have to stop production on the larger scale, thus creating an oversupply of ferrochrome
    2. Secondly, TISCO itself is placing some of the production lines on repairs, thus decreasing its personal demand for ferrochrome
    3. Current supply is more than plenty, especially since TISCO mills are surrounded by ferrochrome producers

  • Most likely by the end of the next week other major stainless-steel mills will announce their bidding prices
  • After those prices are released, we will see of TISCO decided to seize the market opportunity by being the first to publish new price

Mouse or Elephant?

If you see a mouse under the inscription of an elephant, do not believe your eyes!

EU Benchmark vs CIF China South African FeCr price

The above graph represents one of the most puzzling aspects of the ferrochrome industry. The chart shows the gap between European Quarterly Benchmark and CIF China South African FeCr price. It is the same or similar material but the numbers represent the price indexes for two different markets. Needless to say that logistic cost difference is just a few cents and has nothing to do with the huge gap in numbers. While in the past the delta between the two markets was volatile, over the least two quarters it remains stable, on average a 50 cents difference.

Indeed, the existing pricing system does not reflect actual market reality. The same product might have a slightly different price, depending on geographical location and volumes, but such a difference illustrates how the existing system is misleading and that the global FeCr market requires something more reliable to measure actual supply and demand balance.

And the pendulum continues to swing

The trade tension between China and the USA is gearing up on the daily basis. Recently United States announced that it will implement a 10% duty on all the ferroalloys imported from China. Despite the fact that China is a minor player in the US market, the news immediately created negative sentiment within ferroalloys industry in China and worldwide. Currently analysts expect the August tenders to drop to the levels of June Tender Prices.

This once again proves, that like European Quarterly Benchmark, China Tender Prices does not have a value of a true market indicator but rather reflect the speculative sentiments at the moment of settlement. Both suffer from the same issues such as no transparency to the deals, are rarely based on the actual supply/demand and could move for 10% and more in one go with no big change in the background market conditions.

The same case applies here, because the news of 10% duty and other trade tensions news completely overshadowed that China started another stimulus program, thus possibly offsetting negative impact from Trade War.

Over last week China has done the following:

  • Cut its 7-day Treasury rate by 103bps

  • Launched quasi QE

  • Told banks to flood the system with liquidity

  • Sent the Yuan tumbling

  • Warned more easing is coming

  • Provided and additional tax cut of 65 billion RMB (9.6 billion USD) to companies with R&D expenditure

  • Expedited non-budgeted special bond sales to assist local government infrastructure financing

  • Eased restrictions on banks’ issuance of financial bonds for small firms

Combined with the recent data on chromium ore imports, stocks and ferrochrome production, these measures should be looked upon for pricing clarity.

Chromium ore stocks are now over 3 million tonnes, which represents about 2.5-3 months’ worth of production, the highest level seen from 2011. Ferrochrome production for H1 2018 is about 10% higher than H1 2017 and 25% higher than H1 2016. This shows that demand in China is still growing, and the new stimulus package should help settle the domestic demand at even higher level.

Additional upside comes from India, where due to severe rains and floods in Odisha state has caused delays in chromium ore mining and ferrochrome production. This coupled with all India truckers strike, even further complicated delivery of raw materials and finished goods from mines and plants. India is one of the largest suppliers of HC FeCr to China, in 2017 it accounted for 12% of total imports, while in 2018 it accounted for about 10%. The issues India is facing wont last forever, but it should help keep the market in China more balanced, until the impact of simulus will come into effect.

When the smoke is going down

Let’s look at the latest announcement of 700rmb/mt increase for July of ferrochrome bidding price by biggest stainless producer in China. This is widely regarded as the result of the environmental shutdowns in local ferrochrome industry combined with the demand fueled by the monetary easing measures. Restarted by financial authorities in April by decreasing of the banking reserve requirements and repeated in June. This comes in the background of recent announcement of the European Benchmark settlement for Q3 with just a cosmetic correction to previous quarter and at the level of about 10 usc/lb higher than many market participants might have anticipated.

This time European Benchmark has played a role of a leading indicator for the ferrochrome market. It was rather looking forward at the supply/demand picture than following bidding prices dynamics in China as it was the case for at least the last two years.

This is a change of the game and might be a sign that consolidated South African ferrochrome industry is taking more significant role in the market development. The news comes combined with the other factors in the country industry such as chrome ore export duty discussion, electricity cutback risk reappearance in the news and changes in China domestic production where the main recent topics were environmental production interruptions and closure of non-profitable ferrochrome producers.

There was a time in the early 2000’s when ferrochrome market in China depended on import and was following international trend. After 2008 it was moving in its own direction, not so much correlated with the international one. It was leading the market ex China for the past three years, and now the game is changing again. Hope to see in the second half of the year that it is going to be something new or is it a pendulum swing?

From dusk till dawn. Possible environmental cutbacks and global ferrochrome market in Q3 2018

Currently, the ferrochrome prices have started rising due to potential environmental cutbacks, which are currently being implemented in China. Nevertheless, the effect from the cutbacks will not last long.

As discussed, modest increase in China tender prices from May to June (200 RMB/t) was a positive sign. It was based on the actual fundamental factors, such as: improvement in stainless steel demand in China and an overall attempt by China’s ferrochrome industry to find a firm market ground for its further development.

On the other hand, there is a speculative factor of possible shutdowns or production cutbacks of ferrochrome producers in Inner Mongolia. Ferrochrome spot prices in China have increased by 400 RMB/t over the last weeks, according to Ferroalloynet.com. The market experts estimate that China tender prices for July will follow the rising trend.
However, if the prices go up rapidly this might counterweight the progress of stabilizing ferrochrome markets in China and worldwide.

In present market situation the optimal solution would be to continue moderate and calculated price approach in China, for both spot and tender prices.

EU Benchmark vs. China Tender

  • The benchmark values are published with one quarter lag, Q3 forecasted price corresponds to Q2 timeline
  • Orange square represents a base scenario for the EU Benchmark decrease in Q3
  • Green square represents Scenario 2 for EU Benchmark decrease in Q3

Q3 European Benchmark will probably continue its trend to follow China’s big mills bid prices and decrease for Q3 due to price dynamics in China from Q1 till now and a usual holiday slowdown in EU in Q3. While tender prices will be showing opposite tendency building a positive background for Q4 BM negotiation process.

Q3 2018 more of the same or change in trend?

As we expressed in our last column, the necessity for FeCr China Tender prices to break 7,000 RMB/t is apparent. Following the latest announcements by stainless-steel mill in China, it is safe to assume that this price is now a new support level.

Despite the modest increase of 200 RMB/t, we view it as a positive sign, taking into account continues growth in the spot market of both chromium ore and ferrochrome in China. These growths also come heading into Q3, which is widely considered the slowest time of the year for both ferrochrome and stainless-steel industries.

Will this growth continue? We believe so, especially based on the latest news of output reductions in the provinces of Fujian, Sichuan, Jiangsu and Hunan due to profitability issues. Additionally, there is a concern about possible future output disruptions and possible shutdowns in the major production hub of Inner Mongolia, after central China’s environmental inspection team arrives there.

These problems might push next China Tender Prices even further up, and though it is good news for the industry, be see increased volatility as a major problem. It would be preferable to continue modest price increases of few hundred RMB/t over the next quarter, rather than a thousand RMB/t or more jump, followed by 2-3 months slide.

China Tender Prices (Quarterly Averages) and EU Quarterly Benchmark

As you can see from the graph above, currently benchmark and China Tender Prices are continuing their trend, where benchmark continues to follow Tender Prices from China with a lag. Looking forward to Q3, benchmark might have to adjust to drops in China Tender Prices during Q2, and to summer period slowdown in stainless-steel production in EU.

A Few thoughts on the second half of 2018

With the first half of 2018 almost over, we would like to point out couple of observations which we believe are important for the market in the nearest future.

China Tender prices recently have been decreasing over the last three months. Although the current drop is much steadier than last year, now it seems that the market has found a footing floor, below which the supply might not be sustainable.

As the graph below shows that over the last two years, when the price drops below 7,000 RMB/t, the availability of the FeCr in China decreases.

Thus, a 7000 RMB level is rather a technical floor for tender prices in China in present circumstances. As the result, we expect the prices to start picking up again in the second half, though with a more calculated and moderate pace.

Another interesting development which has happened during the last couple of years but might not have been fully recognized by the market, is continuous consolidation of the ferrochrome industry in South Africa. The diagrams below illustrate that by 2018 only a few producers remain.

The main reasons behind the closures or production suspensions in RSA are as follows:

  • Generally difficult market conditions and unhealthy demand;
  • Lack of chromium ore deposits or high mining costs; and
  • Constant shortages and price increase for electricity

With potential acquisition of Hernic by Samancor, South African ferrochrome industry will be controlled by two major players: Glencore and Samancor. However, it is unlikely that Samancor will take over Quarterly Benchmark negations.

2018 Episode: A New Hope

While China is enjoying its annul festivities, South Africa has become a center of attention for the ferrochrome and metals industry. The interest is primarily due to the country’s political change, the election of the new president and rapid strengthening of the Rand.

Over the last couple of months, South African Rand (ZAR) has appreciated by around 12% to US Dollar (as shown in the graph below). This jump made Rand one of the fastest growing currencies among all emerging countries.

The strengthening of ZAR does have an unprecedent impact on the South African ferrochrome industry:

  • The strengthening of the Rand will result in increased cost of production for South African ferrochrome producers. This is turn will impact their relative competitive advantage versus Chinese producers, that was in place during price downturn and weak Rand.

  • Still, we believe that appreciation of the Rand will likely force the SA mining and ferrochrome industry to increase the sales price of their respective products, including ferrochrome, chromium ore and UG2.
  • Despite possible increase in prices, we see this as an additional step to balance the ferrochrome market.
graph

One of the main reasons for strengthening of the Rand was election of Cyril Ramaphosa as the new president of South Africa. His view on economy, specifically the mining sector showed that finally the government will address the issues plaguing the industry over the last decades. Furthermore, there is a strong believe that he will scrap completely the new Mining Chapter, thus attracting more investors in the country.

In conclusion we see both events as an important step in the history of the South African ferrochrome industry and expect it finally to get out of the recession.

"Back to the Future". FeCr Feb tender: more RMB means less Rands per unit

For the second consecutive month, stainless steel producers in China increased their ferrochrome tender prices by 600 RMB/mt, apparently the fundamentals support our expectations. Although this is an increase of 8%, we expect more growth towards the end of the quarter.

On top of the reasons discussed in the previous posts there is additional strong reason for further increase. This is a strong growth of South African Rand against USD, which has accelerated recently.

graph

As the above graphs shows that weakening of South African Rand over 2016-2017 helped chromium and ferrochrome producers to keep their revenue in Rands through the period of low prices (USc/lb). Over the last quarter, Rand strengthened by around 10% relative to dollar, thus forcing producers to increase the price for both chromium ore and ferrochrome.

Now prices of domestic ferrochrome in China are up 8% in RMB/mt. This will translate into a more or less same increase of usc/lb CIF China import price for South Africa’s Charge chrome. Yet, producers from RSA will get no increase in Rands per mt to cover their rising costs.

Start of 2018: "For a few dollars more"

With 2018 being only two weeks old, some positive news seems to come. That will hopefully be a positive sign for the 2018 in the Chrome industry.

There are indeed some positive indications:

  • High Carbon ferrochrome spot prices continue to rise in China and Japan. Despite holidays and slow trading, the prices are on the rise, as some traders and stainless-steel companies are preparing to store material for Chinese New Year, according to FerroalloysNet.

  • Spot prices for chromium ore in major Chinese ports continue to increase. In December alone, the prices increased by 10%, thus forcing ferrochrome producers to push their prices upwards.

Unichrome’s view on global low carbon FeCr market has not changed despite the correction of the China domestic prices in Q4, while current LC weekly dynamic it is down, which we believe does not reflect the underlying demand\supply picture. Thus, we expect this trend to reverse soon.

January tender prices in China also started an upward movement after two/three months of decrease due to increase in chromium ore, coal price and electrode cost increase.

Low Carbon prices in USA also seem to pick up — due to slowdown of imports from China affected by domestic price increase and export cuts by traditional suppliers due to the long time history of disadvantage in netbacks.

Improvement within China carbon steel industry

According to China’s Ministry of Industry and Technology, despite capacity cuts, China carbon steel industry profits improved by 180%, whilst operating revenues also jumped by 20%.

What is the main reason to that? — In our opinion, the carbon steel industry will be more focused on quality and profit improvements, and, at the same time, cutting overcapacity, including shutting down all loss-making enterprises and merging smaller ones. These measures show that China is quite ready to implement rather radical ways. After resolving the carbon steel industry problems, the Chinese government might potentially turn to solving exactly the same issues within stainless steel industry. Therefore, one can expect that such changes will improve demand for higher quality ferrochrome products.

China HC Ferrochrome update

As we discussed in our end of the year report, we expected China spot prices to grow at the beginning of the year. Judging by the latest news, our expectations were justified.

As reported by Metal Bulletin, the prices are continuing to increase due to increase in power prices (resulted from coal price increase) and continues growth in chromium ore prices. Both issues might lead to decrease in domestic production, thus China will have to rely on imported ferrochrome.

"Tomorrow never dies" — What is ahead for ferrochrome?

Some positive news are coming this week between Christmas and New Year. As we expected in UNICHROME, major stainless-steel producers in China have announced increase in their tender prices. It is up by 200 RMB/T. We think this is a move in right direction and we believe that Q1 2018 tender prices will continue to rise. We base our believe on the following:

  • The current environmental shutdown in China, so far has not affected stainless-steel production but has affected some ferroalloys producers.

  • Demand within China for the stainless-steel hasn’t shown any significant signs of weakening, and we believe it will continue to strengthen

  • Imports of chromium ore have been growing over the three months untill October, as well as prices. snd then decreased in November following prices drop. This behavior is a classic sign of the strong market. Cr ore prices are growing since then and this should lead to increase of import. All in all this is supporting the cost and price for ferrochrome.

  • Spot prices in China was rising recently thus also driving the import prices up.

We believe that recent drops in tender price for three months were already enough if not more than enough to reflect actual supply/demand balance, and the market will grow again. In our view a decrease in market volatility will help stabilize the industry, which has been suffering from extreme volatile price development creating disproportionately in supply/demand balance since at least 2016.

"Live and Let Die" — a Couple of Thoughts on New Benchmark Developments

Recently, there has been quite a bit of a dynamic development on supply / demand and, obviously, prices for some of Ferroalloys. Let’s take FeSi and some other products like electrodes as an example, which have recently exploded. Seems, ‘security of raw material supply’ has a chance to be the-phrase-of-the-year after a decade of the domination of so called ‘supply diversification’.

And what is happening with Cr price today? We refer to our previous view posted during Lisbon Conference. Over the last two years, EU Benchmark followed the dynamic of tender price in China. This price went down by 1,400 RMB/mt or approx 17% during the last three months (which is equivalent to 17usc/lb in absolute and in relative terms of approximately 23 usc/lb decrease of EU Benchmark). However, the picture has recently changed, and the strong demand is driving the price today on the background of limited supply, but no longer opposite. Will it impact a Q1 settlement? Hopefully, yes, and the last two years trend will break out. Let’s see. In any case, this is a good example to illustrate that the system of pricing of FrCr and other Cr-contained products is outdated.

Going further on FeCr pricing discussion, one could notice a very interesting development recently, when Patrick Ryan has announced the launch of the new index. Indeed, the most important and significant difference, which makes his solutions much more relevant, is the idea to measure, average, and hopefully, publish volumes, and not only the price. The market price has not much meaning without the volumes traded at this price. However, this obvious fact was never applied to most of ferroalloys and FeCr and Cr are good examples. Thats why we believe that above idea will be a good development as it will introduce the index of average price by volumes. Though, it has to deal with the same flaws as the current publications reporting FeCr price: spot market is respectively small and spot deals have a little market representation, as most volumes in US, EU and Japan are traded by formulas and not at fixed prices. Thus the key for such index is to include big enough volumes. This may need to consider and include prices on the volumes sold on long term formulas, otherwise this index will be based on a very small market share. Another issue is the transparency and, how reliable the sources are.

Recent developments of internet trading platforms for ferroalloys and numerous start-ups, designed to apply the blockchain technology in commodity trading in order to ensure facilitation of the transactions, can also help as such platforms will automatically be able to provide the data on the average pricing and volumes. This will automatically solve reliability issue, but again it will require such projects to be successfuly introduced in the industry to attract big enough number of the transactions to have representativeness.

We believe, that the market of Cr-contained products does require new index or a benchmark to reflect new realities, so we would like to suggest the following options:

  • First idea would perfectly feet into Patrick Ryan’s concept: Some (or as many as possible) of major ferrochrome industry participants shall report their weekly average sales/purchase prices, both spot and contractual based on formulas, by the type of ferrochrome product (high, medium and low) as well as volumes, which will be confidentially used for weighted average calculations. In this sense, the published weighted average prices would give more profound representative understanding of the actual market as it will include non-spot sales.

  • The second option is to acknowledge one independent, recognized and responsible trader, who will publish on a weekly (or monthly) basis its public ‘offerta’ for the sales price and binding purchase price bid at, say 5% discount to above of sales price. The purchase price also will specify the quality of the material, but not the origin. The tradable amount should be at least 500 tons per week. This will mean that somebody takes responsibility and will, consequently, lose the money if this price is wrong. This would give markets the feeling that the above price is reasonable and reflects actual market situation.

  • A possible solution can be a company or a hedge-fund handling some quantity of different grades representing respective grade world share of consumption by grades, with the total volume of 300-600k Mt. In this case, main producers and consumers would have a confident share, but not more than 5-10% each. This constitutes approximately 5-10% of the annual consumption of the world ex China. This fund shall quote warrants for certain share of the stock and buy it back with some reasonable discount. No doubt, this trading mechanism will establish more transparent indicators for the price. The justification for the price will be established, and this will also create efficient hedging mechanism on this market. Now we are in the process of forming a group of the parties interested in participation in the creation of such a mechanism. This solution will give a possibility for the Cr market to be more reliable, hedge-able and transparent. Moreover, this system may become a good solution for the other, non-LME metals and ferroalloys to find more appropriate pricing instrument.

The above-mentioned solutions or combination of those are just a stepping stone in developing the pricing mechanism for ferrochrome industry. It won’t be a swift transformation, but it is a change that the market needs. And we do appreciate the support from the stakeholders of this market we received so far.

“You Only Live Twice…” Could 2018 be same or more turbulent for Cr than 2017?

Once again, the market is hit by a downward direction right before the end of the year. Chinese tender prices have dropped around 16-17% over the last three months. Still that drop is less than what the market experienced in the first half of the year.

What is different? — The overall market conditions. Stainless steel industry is having another growth year, with the estimated production being 48 million tons, a new record. The demand for steel is also improving globally. With the improved conditions in the stainless-steel industry, ferrochrome production is also on the pace for the record global production.

So why are the prices going down?
One could call this drop as overcorrection due to end summer over-recovering due to the previous overcorrection in May following over-recovery in Q1-17/Q4-16 which, in turn, was a result of far more deep than justified drop of the tender price in beginning of the 2016. Thus, it is generally expected that the prices will pick up once again in March as demand in China will start to improve.

Background for the drop can be attributed to the fact that China is planning a major 3-month shutdown of the industrial production around 28 major cities. This leads to a strong believe that demand for stainless steel will decrease in Q1 2018. Also supply of chromium ore to China is sufficient enough to maintain necessary levels of production.

Overall, we believe that the industry does not need this Cr and FeCr volatility as it makes whole industry look unpredictable and speculative which in turn makes long term planning impossible and put at risk future development from both consumer and producer prospective. This is again a confirmation that Cr and FeCr markets require new approaches in pricing system.

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