Chromium market growth continues but ferrochrome producers face headwinds – Roskil (Steel Guru – January 29, 2014)

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Roskil reported that at end 2013, ferrochrome prices remained near 4 year lows. European benchmark charge chrome prices were rolled over at EUR 112.5 per lb in Q4, while Chinese domestic spot high carbon ferrochrome prices stood at EUR 83 to EUR 85 per lb. World ferrochrome consumption reached a record level of 9.8Mt in 2012, however, and demand was estimated to have risen by a further 6% to 10.3 MT in 2013. The diverging trends reflected the expansion in the Chinese ferrochrome industry, low ore prices and currency depreciation in leading exporting countries.

China soaks up more ore as domestic ferrochrome output soars;

In 2012, China overtook South Africa to become the largest producer of ferrochrome worldwide. Chinese output of 3.12 MT accounted for 33% of the world total, a rise from 13% in 2005. With low chrome ore reserves and production, growth of 20%py in Chinese ferrochrome output has been based on imported raw materials, mainly from South Africa but also from Turkey, Oman and Albania. Imports from South Africa in the first nine months of 2013 already exceeded the 2012 total, with two thirds comprising UG2 concentrates. Concern over the displacement of South African ferrochrome production by Chinese material smelted from South African ores and concentrates has stimulated debate over the introduction of an export tax or quotas.

Demand for ferrochrome closely reflects trends in the stainless steel sector, which accounts for 80% of consumption. Over the past five years, world consumption has risen by 5%py to an estimated 9.8 MT in 2012. Similar growth is forecast through 2018, slightly outpacing the rise in stainless steel production due to the shift towards steels with higher chromium content and marginally lower scrap ratios. China will continue to drive growth in demand, increasing its share of the world market from 46% to around 53% over the next five years.

Over supply could lead to industry consolidation;

Future Chinese ferrochrome demand will be met by both increased domestic supply and imports. Domestic production capacity is projected to rise by 1.8 million tonne per year over the next five years, with output increasing by 30% to 4.2 MT over the next two years. In order to secure raw material supply, Chinese companies have invested in chrome ore operations in South Africa, Zimbabwe, Turkey, Albania, Pakistan and the Philippines.

Growth in ferrochrome demand is unlikely to translate into higher prices in the short term. Planned capacity expansions in China, Finland, Kazakhstan, Oman and South Africa could raise the world ferrochrome supply by more than 2 MT between 2012 and 2014, resulting in a potential over supply of up to 700,000 tonnes ferrochrome in 2014. In the longer term, the ferrochrome market is forecast to move into balance through 2018.

The net increase in ferrochrome supply is projected at 3.5 million tonne per year to 4 million tonne per year over this period, lower than the total announced potential capacity, as over supply on the world market, higher production costs and power supply problems in leading producing countries result in the closure of less competitive plants or in consolidation between producers. The market for both chromite and ferrochrome would be significantly affected by any restrictions placed on future South African chromite exports, however, as an introduction of export duties or quotas on the supply of chromite raw materials to Chinese ferrochrome producers would exert upward pressure on prices.

Chromium chemicals buoyed by Asia while metal soars on aircraft build out;

The long term decline in demand for chromium chemicals on environmental grounds in industrialized countries has been offset in recent years by growth in Asian markets. Leather tanning and metal finishing are the main applications for chromium chemicals, accounting for around half world demand. Forecast growth of 2%py suggests world consumption will rise from 700,000t sodium dichromate equivalent in 2012 to 780,000 tonnes in 2018, still below current installed viable capacity of 860,000 tonne per year.

Source – Strategic Research Institute

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