FOCUS: Participants eye lower March ferro-chrome tender prices in China
Market participants expect to see a decline in the monthly tender price offered by major Chinese stainless mills for March delivery of domestic high-carbon ferro-chrome when the tenders are officially announced in the coming days. Fastmarkets examines the reasons behind this expectation and discusses how smelters might respond to the lower tenders.
It is important to note that the tender prices announced for February delivery, rolled over from the prior month, are already at multi-year lows. Fastmarkets’ ferro-chrome contract 6-8% C, basis 50% Cr, ddp China, tender price was 5,600-5,800 yuan ($805-833) per tonne on February 28, unchanged since December 27, 2019. This is lowest since May 2016 basis a midpoint of 5,700 yuan per tonne.
Chinese stainless steel market weakened by coronavirus
Most of those market participants expecting a drop in the March high-carbon ferro-chrome tender price have cited bearish sentiment in China’s stainless steel sector as the primary reason.
Sources pointed to subdued domestic demand for stainless steel products in China since the outbreak of the novel coronavirus (2019-nCOV) in the country at the start of the year as well as the looming threat to Chinese exporters after the virus spread to South Korea, the largest export market for China-origin stainless steel.
Fastmarkets’ weekly price assessment for stainless steel cold-rolled coil 2mm grade 304 domestic, ex-whs China in the country’s major market of Wuxi fell for a third consecutive week to 13,100-13,900 yuan per tonne including value-added tax on Wednesday March 4. This is the lowest the assessment has been since July 2017.
In the same week, Fastmarkets’ weekly export price assessment for stainless steel cold-rolled coil 2mm grade 304, fob China dropped to $1,770-1,820 per tonne on March 4, marking the lowest since the assessment was launched in July 2019.
“Market inventories continue to build up despite many mills having cut their production. The current price is already below our production costs,” a mill source said, adding that China’s stainless steel market is likely to remain weak in the near term.
Ore, alloy prices pressured lower by poor stainless steel performance
Earlier this year, Chinese ferro-chrome smelters had expected an uptick in the domestic alloy price, supported by decreasing supply from abroad after South Africa’s largest ferro-chrome producer, Samancor, announced it would cut alloy production by 20%. But they were soon let down by an absence of inquiries from the coronavirus-hit domestic stainless steel industry.
Fastmarkets’ price assessment for ferro-chrome, spot 6-8% C, basis 50% Cr, ddp China was 5,700-5,900 yuan per tonne on February 28, declining by 200 yuan per tonne from a week earlier.
The price had jumped to a year-to-date high of 5,900-6,100 yuan per tonne in early February after China’s extended Lunar New Year holiday resulted in tightened supply amid raw material disruptions and transport problems caused by authorities’ attempts to contain the coronavirus.
And while most participants had expected Chinese stainless steel mills to offer a higher monthly tender price for February, in line with the stronger domestic market at the time, mills decided to roll over their tenders, which significantly dampened market sentiment.
Lower-than-expected February tenders also hit chrome ore prices
This weakened sentiment resulting from the disappointing February ferro-chrome tenders filtered upstream to hit chrome ore prices, too.
Fastmarkets’ South Africa UG2 concentrates index, basis 42%, cif China stood at $131 per tonne on February 28, down by $5 per tonne since major Chinese stainless steel mills announced in mid-February that they were rolling over their tender prices.
“With both chrome ore and stainless steel prices narrowing downward, there is no reason that the March tenders will not go down,” a second mill source said.
“March is going to be the worst month for ferro-chrome market,” a trader said. “Small-sized smelters will find it hard to survive amid sluggish demand and problematic cash flow, while medium-to-large-sized smelters will also have to go through some really tough times.”
How do alloy smelters plan to cope with a lower March tender?
Having acknowledged the potential for a decrease in alloy prices, smelters told Fastmarkets they are doing everything they can to minimize the production costs, including aggressive bids for ore.
Bids for chrome ore, the raw material for high-carbon ferro-chrome, were heard to be as low as $125 per tonne in the week ended March 5.
“If we cannot get enough chrome ore at the price we bid, we will reduce our production,” a smelter source said. “It is better to produce less than sell by making losses.”
Some smelters were also heard to be taking advantage of the temporarily lower transport costs due to easing logistical constraints.
“We are seizing the moment to deliver chrome ore from ports to our plants, before the transport costs rise again when demand for trucks go back to normal as increasing number of factories resume their productions,” a second smelter source said.