Why are Chinese stainless steel mills aggressively reducing ferro chrome tender prices?

Today a major Chinese stainless steel mill declared its purchase tender prices for ferro chrome. The prices were reduced by RMB 800/t ($124/t) m-o-m for Sept deliveries to RMB 9995/t ($1543/t). The tender price for HC ferro chrome by Tsingshan is lower than the market expectation due to a confluence of factors as stated below:

Production cuts at stainless steel mills
China's governmental intervention into the steel industry led to the expectation of lower stainless-steel output. In response to the national policy of curbing output and reducing energy consumption, some stainless-steel mills under the Tsingshan Group are scheduled to shut their blast furnaces (BFs) with some opting for up to three months' shutdown, which will affect output amounting to 20,000-30,000 t/month for the 200 series of stainless-steel.

Though the national intervention has not had a significant impact on stainless steel mills, the potential impact on reduced demand for ferro chrome is worth noting.

Improved production of ferro chrome in China
Following the resumed power supply, HC ferro chrome output rebounded to some extent in China. With the power usage peak in summer drawing to an end, the tight supply of power nationwide has softened. Wind power supply in Inner-Mongolia has picked up, and power supply from external sources has been lowered. Plus, there has been an increase in hydro power supply in south China. Thus, the curbs on power use in the ferro chrome industry are on the wane and output of ferro chrome has somewhat resumed. If there are no other unexpected disruptive factors, the output of HC ferro chrome in September will go up.

Increased usage of stainless steel scrap
The increasing use of stainless-steel scrap has replaced demand for some amount of ferro chrome. While Tsingshan's stainless steel mills are on maintenance, they plan to resort to short-route smelting. According to the cost module, the short-route production costs using stainless steel scrap as raw material will save RMB 500/t compared with the BF route for the 200 series.

Recently, Tsingshan has been increasing the purchasing volume of the 201 series stainless steel scrap, which will substitute some demand for ferro chrome.

Traders see quick clearance of imported stocks on falling prices
Affected by the scarcity in containers and the long turnaround shipping time, the bookings are a little weak. Recently some exporting countries that are not heavily bound by long-term contracts noticed prices softening. This week, Tsingshan ordered 3,000 t of ferro chrome from India with CIF prices closed at $125-126 cents/lbs and other bookings are underway as well.