Dried and bagged chromite prices edge up; rising costs pressure producers
Dried and bagged chromite prices on a FOB South Africa basis rose slightly during the two weeks to Tuesday September 19, with market participants reporting rising production costs due to high diesel prices in South Africa and a weak rand
Fastmarkets’ fortnightly assessment of chromite, foundry, 46% Cr2O3 min, dried and bagged, fob South Africa rose to $370-415 per tonne on Tuesday, from $370-410 per tonne on September 5, marking the second increase in a row after several weeks of stability.
But the increase in sales prices has not been enough to offset rises in production costs, sources reported during the assessment period.
Diesel prices rose substantially in South Africa, the key production hub for chromite. The South African Department of Mineral Resources and Energy announced increases to both petrol and diesel prices on September 6, with rises for diesel between 2.76 rand and 2.84 rand per liter.
The dried and bagged market has been particularly affected because diesel makes up a greater part of the cost of production than for wet bulk, sources told Fastmarkets. Usage of diesel has also increased due to producers resorting to backup generators while high levels of loadshedding persist in South Africa.
“Diesel prices had a massive increase in September, and we expect further increases in October,” a seller in South Africa said.
“Our drying costs have increased severely as we are running for [long periods] on generators, which are drinking diesel at alarming rates,” the seller added.
“Drying costs are not competitive,” a second seller in South Africa said. “At the end of the day, [I think] the market will have to pay [more], otherwise there’s no incentive for [people] to do dried and bagged. If they’re getting [similar] prices for wet bulk, why go through the hassle of drying and bagging?” they added.
While diesel costs undoubtedly also affect the cost of transporting other types of chrome ore to port and from port to their destination, diesel is a big component of the cost for drying kilns, further contributing to the input cost rises for dried and bagged material, a chrome ore trader in Europe explained.
“The drying kilns are basically run using diesel, or paraffin, and that’s linked to oil prices. Also, right now, there are drying plants that are connected to the grid but don’t have backup generators, so loadshedding causes interruptions and fixed costs go up,” he said.
For those that do have generators, the rising cost of diesel means relying on them rapidly becomes very expensive, he added.
The hike in costs has also been exacerbated by the weakness of the rand against the dollar. The exchange rate was 18.96 rand to the dollar on Wednesday, compared with 17.59 rand at the end of July, according to currency exchange website Oanda.com. This means the rise in costs in rand terms has outpaced the increase in sales prices in dollar terms up to now, sources said.
“The rand has depreciated against the US dollar, so that does increases costs, especially diesel. This also impacts inland logistics costs,” a third seller in South Africa said.
There are additional costs involved in transporting material because it must be moved from the mine to the drying facility and then potentially to a warehouse before it is taken to the port, the trader in Europe said.
“Overall, the transport element of the cost for dried and bagged is [higher] than for metallurgical grade. You’re trucking it more than once,” he said.
“The cost difference [of dried and begged compared to] wet bulk is ballooning. A lot of producers of dried and bagged are under a lot more cost pressure,” he added.
There may also be some upside support to chromite prices from supply tightness at ports, according to a trader in China, but this also may be stymied by currency movements in the Asian country.
“The chromite price is mainly supported by low port inventory, but the fluctuation of the Chinese yuan [exchange rate] against the US dollar makes [trading] quite difficult,” the trader in China said.
There has been a similar effect in the metallurgical market in recent weeks, with buyers reportedly hesitating amid currency fluctuations, with the possibility that the cost to import could be affected by any further weakening of the yuan against the dollar — especially because UG2/MG chrome ore prices have risen in dollar terms.
The exchange rate was 7.29 yuan to the dollar on Wednesday, according to Oanda.com, compared with 7.15 yuan at the end of July.
Wet bulk prices hold steady in quiet spot market
Meanwhile, both foundry and chemical wet bulk prices held steady during the assessment period amid generally quiet spot conditions. Buy-side sources in the chemical and foundry grade markets were less bullish than their counterparts in metallurgical grade markets, however.
Fastmarkets’ fortnightly price assessment for chromite, chemical, 46% Cr2O3 min, wet bulk, fob South Africa held at $310-330 per tonne on Tuesday, after rising in the previous two assessments.
And the fortnightly assessment for chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa was also stable at $320-370 per tonne, having also increased in the previous two quotations.
“The trend of chemical grade chromite [pricing] is following the price of metallurgical grade chrome ore, which is generally on the rise. But the truth is, the demand for chemical grade chromite is [flat], almost nothing new in most of 2023,” a buyer in China said.
“I haven’t seen prices coming off, but demand has been weaker, so there could be a bit of pressure coming in these markets,” the second seller in South Africa added.