Currency volatility looms large over alloys, steel markets: LME Week

Volatility in key currencies has been at the forefront of the minds of many steel and ferro-alloys producers, traders and buyers in 2023

With energy markets also remaining volatile, traditional currency’s effects on costs have been intensified, aggravated and even offset, exacerbating risk and uncertainty across the supply chains.

As LME Week nears, Fastmarkets looks at the impact of four currencies and their interactions over recent months.

Rand movements hit chromium, manganese markets

Manganese and chrome markets both have exposure to the volatile South African rand because South Africa is a key production hub for these materials.

In theory, when a commodity producer’s home currency weakens against the dollar, they earn more in their home currency when they sell in dollar-denominated markets. But there are exceptions, such as when input costs are paid in dollars.

In the non-metallurgical chromite market, sources said in September that rising input costs had been exacerbated by the weakness of the rand against the dollar, with increases in costs in rand terms outpacing increases in sales prices in dollar terms.

But in the metallurgical market, where consistently high prices allow greater margins, the effect of diesel and trucking costs is less pronounced, a chrome ore trader told Fastmarkets, meaning fluctuations in the rand also have less of an effect.

Rand movements also have an influence on trucking, with weakness potentially exacerbating rising diesel prices, since the oil price is denominated in dollars.

“If the market [for manganese ore] was at [higher prices] and the rand was at 19 to the US dollar, then yes, producers would be able to move more by road and still be profitable compared to the current [lower prices] and the same exchange rate,” a manganese producer told Fastmarkets.

On the other hand, when the rand was stronger during July this year, it reduced the margin between trucking costs and product prices when the sales price was already low.

While manganese is more commonly moved by less expensive rail transport on pre-agreed contracts, rand fluctuations and their impact on margins can be a factor in whether miners opt to use road transport, and such decisions affect overall export volumes.

In a market like ferro-chrome where material is often moved by truck and profit margins are also small amid lower product prices, rand fluctuations can have even more impact.

“There’s so much cost pressure that 19 [rand to the dollar] is now the new normal. It’s not giving producers respite; it’s not allowing them to increase their profit. It’s a safety net, but just a tiny bit,” a ferro-chrome trader told Fastmarkets.

“If [chrome ore is at high prices], alloys are not making money, even with the rand at 19.20. We’re waiting for more improvement on the alloy price.”

Tied into this is the ongoing issue of loadshedding – controlled power outages – in South Africa, leading to producers increasing reliance on diesel-powered backup generators, which become less economical to run when the diesel price rises, and if the rand weakens.

“A weaker rand is beneficial for producers, but on the other hand, it results in higher costs [such as diesel]. Coupled with loadshedding, it makes production more costly and complicated,” a chrome ore trader said.

The rand has been so volatile recently that it has been difficult to make longer-term decisions, sources told Fastmarkets.

Diesel prices went up drastically [in September and October]. Exchange rate movements [could] have alleviated some of the increase.

“Diesel prices went up drastically [in September and October]. Exchange rate movements [could] have alleviated some of the increase,” the manganese ore producer said.

“However, our long-term forecast on the USD/ZAR exchange rate [had] not yet been revised given the constant changes, so the weakening would assist producers, but I don’t think many producers would have implemented too many changes in only one week of rand weakness.”

According to currency exchange website, there were 18.78 rand to the dollar as of September 1, weakening to 19.21 as of September 7, before strengthening to 18.75 as of September 24. As of October 6, the value was 19.45 rand to the dollar.

Yuan movements create buyer caution

Fluctuations in the yuan against the dollar have also affected both manganese and chrome markets, since large volumes of these materials are sold into China.

Seaborne manganese ore and chrome ore buyers in China, for example, would typically benefit from a stronger yuan, since this would decrease import costs in terms of the conversion value, while a weaker yuan would drive their costs up.

The chrome ore market is particularly exposed to the yuan today, sources pointed out, saying buyers face risk and uncertainty because their costs are unknown until they fix their exchange rate conversions.

“In periods where there’s a lot of volatility in the yuan, particularly when it’s weakening, it creates an exchange rate risk for buyers. Let’s say you buy material at [a given price in dollars] but you haven’t fixed your foreign exchange conversion to yuan – until you fix that exchange rate, you have an unknown cost in the domestic Chinese currency,” the chrome ore trader said.

Alongside this, in China’s portside spot market, where port traders sell in yuan, if the chrome ore price stays flat in dollars but the yuan weakens, they will increase their offer price in yuan to compensate, and vice versa.

“Right now, we’re in a situation where there’s so little port stock that everyone has to buy from the forward market anyway and that’s what’s keeping the [chrome ore] price so high. As a result of that, everyone is focused on the exchange rate,” the first chrome ore trader said.

In the manganese market, during September, the depreciation of the yuan also had a direct effect on seaborne prices, pulling them down amid buyside concern over increased import costs.

A Chinese manganese ore trader said at the time that the exchange rate movements had led to dwindling profit margins following purchases of Gabonese ore.

Fastmarkets’ weekly calculation of its chrome ore South Africa UG2/MG concentrates index, cif China was at $303 per tonne on Tuesday October 3, close to the $305 per tonne high for the year to date, set in May.

As of Friday October 6, Fastmarkets’ weekly calculation of its manganese ore index, 37% Mn, cif Tianjin, was at $3.60 per dry metric ton unit, versus a high for 2023 so far of $4.59 per dmtu set in February, and the weekly calculation of its manganese ore index, 44% Mn, cif Tianjin was at $4.29 per dmtu, compared with a year-to-date high of $6.14 per dmtu in February.

According to, there were 7.20 yuan to the dollar as of October 6, compared with 7.34 yuan to the dollar on September 6.

Lira fluctuations affect Turkish flat steel prices

The lira has steadily weakened since gaining some strength against the dollar in the immediate aftermath of the announcement of a major rate hike in August from the country’s central bank.

The lira strengthened to 26.31 lira to the dollar on August 26, versus 27.20 lira to the dollar on August 23, the day before the rate hike announcement.

As of October 6, there were 27.56 lira to the dollar, compared with 18.68 lira at the start of 2023.

In July and August, the weakness of the Turkish currency had a dampening effect on demand for domestic flat steel in the country, Fastmarkets reported.

Because flat steel is traded in dollars in Turkey, buyers could not forecast how much they would pay when they received the product about two months after placing an order, a steel service center source said.

“[If] you order about 10,000 tonnes of steel, you need to pay about 200 million lira [and] most companies do not have such [a big] credit limit. In addition, the risk of steel prices decreasing significantly, or the Turkish lira losing value [again, are] always there. As a result, we have reduced the tonnages we order to reduce the risk,” the service center source said at the time.

Also in August, there were rises for domestic rebar and wire rod prices as a result of the weakness of the lira against the dollar.

Turkish mills mostly buy raw materials in US dollars before selling finished steel products to the domestic market in the local currency, meaning a weaker lira may prompt an increase in product prices.

Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar) domestic, exw Turkey was 19,200-19,700 lira per tonne on August 24, but has since come down slightly, standing at 18,900-19,650 lira per tonne on October 5.

Egypt faces weak pound, lack of foreign currency

Protracted weakness in the Egyptian pound has loomed over the country’s steel industry throughout 2023, causing producers to increase prices for products, including rebar, while they shoulder rising costs for raw materials priced in dollars.

The Egyptian pound was trading at E£30.77 to the dollar on October 6, according to, compared with E£27.67 to the dollar in January and E£24.69 to the dollar in late December 2022.

In the imported billet market in particular, deals have been scarce in Egypt in recent days since buyers have also been constrained by a lack of foreign currency, which Egyptian steelmakers need to pay for raw materials imports.

Egypt had record rebar consumption for 2023 so far in August, but demand for both rebar and billet products has been comparatively low year on year, with buyers choosing local billet over imports because of the struggle to obtain the foreign currencies needed to pay for overseas billet.

Since international trade sanctions were introduced following Russia’s invasion of Ukraine in February 2022, Egypt remains one of the few countries without restrictions on Russian steel billet imports, but deals have been scarce because of Egypt’s shortage of foreign currencies.

In addition, after announcing plans to impose export duties on steel from October 1, Russian mills moved to raise offer prices, but the Egyptian market would not accept the higher levels because of the shortage.

As a result, Fastmarkets’ weekly price assessment for steel billet import, cfr main port Egypt was $515-520 per tonne on September 28, down 2.36% from $520-540 per tonne on September 21, although the price had widened slightly as of the most recent assessment on October 5, to $510-530 per tonne.

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