Loose supply worries loom for China's ferro chrome market

Mysteel: China's high-carbon ferro chrome market has come under significant pressure during the past month from declining production costs and low profitability among stainless steelmakers, and there's no end in sight. Going forward, weak demand from end-users in the stainless sector could exert further downward pressure on ferro chrome prices, cautioned a Wuxi-based analyst.

As of 10 September, the price of high-carbon ferro chrome with 55% Cr content in North China's Inner Mongolia-a key benchmark for the domestic market-dropped to yuan 8,500/tonne ($1,194.7/t) (50% Cr), ex-works and including tax. This marked a further decline of yuan 200/t compared with the previous month.

The primary driver for this price drop has been mounting losses among stainless producers, the analyst said. Many are grappling with significant production losses, making them reluctant to offer high bidding prices for raw materials such as nickel pig iron (NPI) and ferro chrome.

According to Mysteel's latest survey, Chinese stainless steel producers using domestic NPI as feedstocks suffered an average loss of yuan 2.13 for every tonne of stainless steel they produced as of 10 September, compared with a profit of yuan 0.8/t just one month earlier.

These losses are expected to deepen as domestic stainless prices face further downward pressure from weaker end-user demand, the analyst predicted. In response, major stainless steelmakers have already lowered their tender prices of ferro chrome. For example, on 21 August, Tsingshan Group, China's largest stainless steel producer, announced its bidding price for high-carbon ferro chrome at yuan 8,695/t (50% Cr), including delivery and tax, with delivery due before 10 October. The price represents a drop of yuan 200/t from the previous month. Tsingshan had reduced its September purchasing price at Tianjin Port by yuan 150/t m-o-m, according to a bidding announcement also on 21 August.

On the smelters' side, the lack of cost support has made it difficult for FeCr smelters and traders to push for higher prices. Over 9 August- 10 September, the price of chrome concentrate imported from South Africa fell slightly by yuan 1/dmtu on month, settling at yuan 61.5/dmtu at Tianjin Port, according to Mysteel's latest assessment. This small decrease was largely due to high stocks of chrome ore accumulated in early September, which put downward pressure on concentrate prices.

Similarly, the price of metallurgical coke has experienced a notable decline over the past month. As of 10 September, China's national composite coke price, as assessed by Mysteel, had slumped by yuan 295.2/t on the month to yuan 1,544.5/t, including 13% VAT.

Given their declining costs, it's probably no surprise that production among Chinese FeCr smelters has remained relatively buoyant. Mysteel's monthly survey, which covers 95% of domestic FeCr smelters, showed that output of high-carbon FeCr in August remained strong at 797,260 t, only slightly down from July's 801,800 t.

Looking ahead, domestic FeCr smelters are expected to maintain high production levels this month, with China's crude stainless steel output in September likely to remain robust. Mysteel estimates that crude stainless output from the 43 mills under its regular tracking will reach 3.33 million tonnes (mnt) this month, which is still high though down 0.7% from August's 3.36 mnt.

This has heightened concerns of an oversupply of FeCr, which could drive further price declines this month, the analyst concluded.