2018 ICDA CONF: Oversupply to haunt chrome industry in the short term
Expansions in chrome capacity over the next five years will lead to a global oversupply in the short term, Fastmarkets learned at the 2018 International Chromium Development Association (ICDA) Conference in Baotou, China’s Inner Mongolia Autonomous Region on November 6-8.
There will be an increasing oversupply in the chrome industry over the next five years though it is difficult to gauge whether this situation will persist in the longer term, according to Jochen Berbner from US consultancy firm McKinsey.
“Our estimation is that in the next five years, there might be around 4-5 million tonnes of chromite coming from different regions, mainly from Zimbabwe, South Africa and Kazakhstan,” Berbner said.
“With new smelters coming online during the last few years, ferro-chrome output [in Zimbabwe] has increased significantly. [The country’s] output in 2018 is expected to hit a record high at 378,000 tonnes, and in 2019, production is expected to increase 6% to 425,000 tonnes,” Clara Sadomba, general manager of marketing and administration from ferro-chrome producer Zimasco, said.
Sadomba added that in the medium term, Zimbabwe’s ferro-chrome capacity is expected to rise to over 1 million tonnes per year by 2022.
China has also expanded its ferro-chrome capacity in the past few years amid increasing demand relative to prior years from stainless steel mills and the considerable excess in capacity has drawn growing attention, Fastmarkets understands.
“China’s annual ferro-chrome production reached around 5 million tonnes in 2017 while the capacity is currently as high as 14 million tpy, with the capacity utilization rate below 40%,” Tao Jing, chairman of ferro-chrome producer Mintal Group, told delegates.
On the demand side, stainless steel – which accounts for 77% of chrome demand – will remain the main driver for the chrome market. China contributes more than half of global chrome demand, according to Nils Backeberg from consultancy Roskill.
The demand for chrome is expected to rise, according to panelists, however, at a limited pace.
“After global demand for chrome increased by 5% last year, we are coming into a phase where actually the demand fluctuation is more at 1-2% per year, partly due to the slowing in demand from China [as a result of] the slower gross domestic production growth,” Jochen said.
“The increased use and availability of sustained scrap also contributed to declining of the demand for primary chrome,” Jochen added.
“With Chinese government’s growing encouragement of EAF [electric arc furnace] steelmaking for the purpose of air quality improvement, stainless steel has fed and will increasingly feed on scrap, and we expect such feedstock to reach 4 million tonnes in 2019,” a market participant told Fastmarkets on the sidelines of the conference.
“Some stainless steel plants have turned to the carbon steel production due to the latter’s handsome profits in the past two years and this might also impact the consumption for ferro-chrome,” the participant added.
The increased use of scrap in the stainless steelmaking process and the transition to carbon steel production will lead to a reduction in the consumption of ferro-chrome, Fastmarkets understands.
Despite a moderate increase in demand for ferro-chrome, consensus during the conference was that ferro-chrome capacity and production ramp-ups continue to significantly outpace the growth of demand, which is likely to subdue the ferro-chrome prices.
Globla ferro-chrome consumption is forecast to reach 12.28 million tonnes in 2018, while global production is expected to hit 12.46 million tonnes, indicating a slight oversupply for this year, according to Fastmarkets MB Research.
Indeed, the ferro-chrome market has already seen an obvious decline in Chinese prices for the material this year partly due to the fact that the demand from domestic stainless steel mills cannot keep pace with the ramp-up of ferro-chrome production in the country.
China’s spot domestic ferro-chrome, basis 50% chrome, price averaged 7,387 yuan ($1,061) per tonne over the January-October 2018 period, declining by 12.2% from an average price of 8,418 yuan per tonne over the same period in 2017, according to Fastmarkets data.
In the first ten months of 2018, Fastmarkets’ charge chrome index, cif Shanghai, averaged 92 cents per lb, representing a year-on-year drop of 9.8%.