INT’L FERRO-ALLOYS CONF: Eight things we learned in Lisbon

Here are eight things we learned when the ferro-alloys community gathered for a busy week of meetings and contract negotiations in Lisbon at Metal Bulletin’s 33rd International Ferro-alloys Conference.

Discounts against noble alloys benchmarks are tightening, and in some cases, disappearing
After a year of environmental inspections in China and improving demand from steel mills, sellers of noble alloys have gained the upper hand in negotiations for 2018 contracts, market participants told Metal Bulletin on the sidelines of the conference.

In the case of ferro-tungsten, buyers have agreed to no discount against the Metal Bulletin in-warehouse Rotterdam price assessment in some instances, with supplies from Russia expected to be limited in 2018. In the ferro-molybdenum market, negotiations are underway regarding discounts around 1-2%, while in the ferro-vanadium market, discounts have shrunk to lows of 3%.

US bulk alloy negotiations point towards diverging discounts
Although most bulk alloy 2018-contract negotiations are showing tighter discounts, some divergence has been seen in the early stages of long-term negotiations in the US, market participants told Metal Bulletin.

While spot prices for ferro-chrome and manganese alloys held premium positions for much of the year compared to the global market, discounts have been largely reigned in in comparison to the previous year, with the exception of high-carbon ferro-manganese. Mating season negotiations opened with discounts at 6%, yet market participants indicated that discounts have since widened to 8%, with some fearing it may stretch further.

“Some suppliers seem resigned to the fact that we may be at a premium on the index, so they will respond to that with higher discounts,” a supplier source explained.

Meanwhile, discounts for other bulk alloy producers are down marginally from the previous year, largely holding in the low-to-mid single digits for ferro-chrome and ferro-silicon, according to conference delegates.

Negotiations overall remain in the early stages, with the majority still to be settled as of last week and room for discount trends to shift, market participants noted.

Mating season arrives later after a volatile year
Big swings in prices have seen ores and ferro-alloys prices reach multi-year highs over the past 12 months, with sharp turns higher and lower. The volatility means both buyers and sellers have been content to delay their annual purchasing discussions until slightly later this year, in case of another pronounced move.

Ultimately, though, buyers have held the upper hand in 2018 negotiations, with improved demand from mills leading to concerns of restricted material supply.

“You’ll get an offer and that’s pretty much what the price will end up being – you have to accept,” a trader source said on the sidelines of the conference.

Producers of battery-grade V2O5 powder seeking new way to price their material

It’s no secret that interest in batteries is heating up, and while vanadium redox batteries (VRB) may still be a few years away from the mainstream, forward-thinking vanadium producers are thinking about how to price their material.

There were calls from the sell-side for a stand-alone price amid concerns that by securing their material into multi-year, fixed price contracts, they run the risk of missing out on rising prices should VRB demand take off. Proposals to tie contracts to existing references for V2O5 flake are similarly unappealing, since the battery-grade powder market is likely to display its own supply-demand fundamentals once activity increases.

High-carbon ferro-chrome producers look to separate from European benchmark

Some high-carbon ferro-chrome producers are seeking alternative benchmarks in an effort to distance themselves from the volatility of the European quarterly benchmark.

The European high-carbon ferro-chrome price has trended largely independent of the quarterly benchmark price during 2017, with some market participants believing the price should not be used in reference to high-carbon ferro-chrome.

“Our intention as a high-carbon ferro-chrome producer? We want to de-couple the high-carbon ferro-chrome spot price from the benchmark, because we have nothing to do with the European benchmark,” Yildirim Holding chief executive officer Robert Yildirim said during a chrome panel in Lisbon.

In addition to not having any input on the quarterly benchmark, Yildirim indicated that the price is not representative of the high-carbon ferro-chrome market.

“We want to establish a real benchmark for high-carbon ferro-chrome,” Yildirim explained.

Yildirim expressed concerns, however, regarding the need to distinguish between grades of high-carbon ferro-chrome.

“High-carbon also needs to be split between the high quality and the standard, or low quality, like Zimbabwe, India, Chinese...” he added.

Upstream integration is not the answer for manganese alloy producers
“Securing ore is a major concern for alloy producers, but having a manganese mine doesn’t help to secure profit and loss…Securing competitive power supply is more important than integrating ore supply,” Thembelani Gantsho, joint ceo of Kudumane said.

Non-integrated manganese alloy producers could prove more profitable if coal prices were lower and production management was improved, Gantsho said.

Alloy producers currently purchasing ore at prevailing market prices would instead benefit from locking in some of their supply of long-term agreements at more competitive prices, the Kudumane ceo added.

“There is no value [to integration] other than security of supply, though there is a need given the fragmented nature of the industry,” Gantsho added.

Rising energy costs restricting competitiveness, deterring investment in South Africa

The cost of electricity bourn to the South African mining sector has increased steadily and is five times higher in 2016/17 than it was in 2006, according to Abubekir Salim, md of Vunani Resources.

Rising energy costs make it difficult for South African ferro-alloy producers to strategize and still be active, he added.

“We’re going to get into a situation where we will get [an energy] surplus…Eskom is not engaging with the industry for one-to-one arrangements, so the end result must be an energy surplus and an economy which is not growing,” Salim said.

Supply chain certification could help address anti-dumping concerns

Anti-dumping should be considered a strategic issue and part of supply chain certification, according to Arnoud Willems, partner at law firm Sidley Austin LLP.

Korean companies view trade defense as a strategic issue, bringing visibility to anti-dumping concerns and allowing companies to ensure they are not engaging with companies who are dumping.

“Some companies…request that the company they are dealing with has knowledge of trade laws, and that they are running checks at least once a year to see what their exposure is. Otherwise, you just don’t make it on to their supplier list,” Willems said.

“I think it’s very wise to do so, [giving trade defense] the same coverage and child labor or environmental behaviors,” Willems added.

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