Following reports of a potential power shortage in one of China’s major ferro-alloy production hubs in the second quarter of this year, market participants have downplayed any immediate impact on ferro-alloy prices in the country, saying they intend to adopt a wait-and-see stance in the run up to April.
The shortage is expected to result in restrictions on power usage being enforced in the city, they added.
But some refinery sources in the city said they had not received any notice from local authorities regarding expected power restrictions during those months.
The electric power bureau of Ulanqab had not responded to a request for comment at the time of publishing.
Nevertheless, the overall impact on Chinese ferro-alloys supply and prices from any power restrictions is expected to be quite limited, market participants said, pointing to the fact that the situation will only last for two months, and any potential effects would be short-lived.
Participants divided over potential impact on FeCr output
That said, participants in China’s domestic ferro-chrome market were divided on just how severe of an impact any constraints on electricity usage in Ulanqab during April and May would have on local ferro-chrome production. This despite no specific details surrounding any restrictions being released as yet.
Some ferro-chrome participants in China’s domestic market expressed concern that supply of the ferro-alloy could tighten following the implementation of any electricity restrictions.
“If this round of electricity restrictions turns out to be very strict, the supply [of ferro-chrome] will tighten and I assume this is why Tsingshan chose to raise its March ferro-chrome tender price by 100 yuan ($15) per tonne,” a China-based market source said.
Tsingshan Group, one of China’s leading stainless steel mills, earlier this week set its high-carbon ferro-chrome tender price for March at 6,996 yuan per tonne, an increase of 100 yuan per tonne from its February tender price.
“In that case, [tightening supply] will lend some support to the ferro-chrome price and put some pressure on the upstream chrome ore price at the same time,” the China-based market source added. “It’s hard to quantify the practical effect now, but we will watch closely for when the restriction measures are made public.”
Both ferro-chrome and chrome ore prices have already gained some upward momentum over the past week, finding support from several different factors.
Fastmarkets’ price assessment for Chinese spot domestic ferro-chrome rose to 6,750-6,950 yuan per tonne on February 22 from 6,700-6,900 yuan per tonne a week ago after domestic suppliers lifted offers citing increased production costs amid rising raw material prices. The price is down 14.9%, however, in comparison to an assessed price of 7,900-8,200 yuan per tonne approximately the same time last year.
Meanwhile, Fastmarkets’ UG2 chrome ore index, 42%, cif China, rose by 2.5% or $4 per tonne week on week to $166 per tonne on February 22 thanks to the active restocking after the week-long Chinese New Year holiday (February 4-10). The index has gained 7% or $11 per tonne since early this year, but was still 28.4% or $66 per tonne lower year on year.
Yet despite the lingering uncertainty over how severe the electricity restrictions will be, some sources minimized the effect that such measures would have on ferro-chrome production in Inner Mongolia.
“There might be some reduction in production over those two months, but I do not think the real impact will be as significant as others have claimed. After all, this is not the first time that ferro-chrome producers in the area have been required to restrict their use of electricity and it might not affect the market that much,” a second China-based market source said.
Many ferro-chrome producers in Inner Mongolia have been plagued by electricity issues since last October, according to market sources.
Moreover, even when electricity restrictions were reportedly intensified in late December 2018, which some participants claimed would lead to a 15-20% reduction in local ferro-chrome output, the market witnessed a limited impact, proven by the steady consumption of chrome ore during the period.
New silico-manganese projects to offset any upward support
In silico-manganese, the futures market responded quickly to last week’s news of the possible power restrictions in Ulanqab, with prices rising on this bullish development.
The most-traded March silico-manganese contract price on the Zhengzhou Commodity Exchange (ZCE) climbed to 7,658 yuan per tonne at the close of trading on February 21, compared with a closing price of 7,410 yuan per tonne on February 18 – the day before news of the power restrictions broke. The contract price continued its upward momentum this week, hitting a high of 7,666 yuan per tonne on February 26.
But this renewed optimism was downplayed by participants in the spot market, who say prices are vulnerable to backswings due to several new silico-manganese projects coming on stream in March-May.
“The fundamentals are quite clear… [the] silico-manganese market is in surplus,” a China-based silico-manganese producer said.
As a result, the Chinese spot silico-manganese price bucked the upward trend seen in the futures market and fell after spot activity picked up following the Chinese New year holiday.
Fastmarkets assessed the Chinese silico-manganese price at 7,200-7,400 yuan per tonne on February 22, down from 7,300-7,500 yuan per tonne in the prior week.
Ferro-silicon industry takes watchful stance
Similar to the silico-manganese market, investors in China’s ferro-silicon futures market have played up the news of the power restrictions in Inner Mongolia.
Ferro-silicon futures prices made gains throughout most of last week; the most-traded March ferro-silicon contract price on the ZCE reached as high as 6,094 yuan per tonne on February 26, compared with a closing price of 5,932 yuan per tonne on February 18.
Contrary to the bullish sentiment in the futures market, participants in the spot market are maintaining a more cautious stance due to the high stocks in the market.
“Refineries in Inner Mongolia have already experienced some production disruptions as a result of ongoing electric power restriction in the region since late last year,” a China-based ferro-silicon producer said.
“However, there has been limited impact on the ferro-silicon prices at the moment while spot supply is quite adequate,” he added.
“Operational rates are still at a comparatively high level and the ample supply has weighed on the domestic market, while demand is weak," a second China-based ferro-silicon producer said.
Fastmarkets’ price assessment for Chinese ferro-silicon, basis 75% Si, stood at 5,900-6,100 yuan per tonne on February 22, down 300-400 yuan per tonne from 6,200-6,500 yuan per tonne a week earlier.
“However, if ferro-silicon spot inventories can be consumed in the following one to two months, and the electric power supply shortage in April and May indeed causes significant production disruptions, then the ferro-silicon price might see some support by that time,” the first ferro-silicon producer said.