INTL FERRO-ALLOYS CONF: Eight things we learned in Lisbon

Fastmarkets MB presents the key things we learned when the ferro-alloys community gathered for a busy week of meetings and contract negotiations in Lisbon at the 34th International Ferro-alloys Conference on November 11-13.

The global vanadium deficit will continue:
Ferro-vanadium and vanadium pentoxide prices sit at or near historic highs due to significant global supply concerns, and market participants could not foresee an end to the supply issues over the near term.

Estimates of a 5,000-7,000 tonne global vanadium deficit were suggested during the conference in Lisbon, with an expectation of this deficit expanding due to the newly adapted rebar standards in China. Enforcement of these standards began at the start of this month.

With the estimated demand impact of these rebar standards ranging from an additional 5,000-20,000 tonnes per year of vanadium, it was clear market participants were concerned with the seemingly widening deficit.

Delegates were at a loss when trying to predict the inevitable correction on vanadium prices given the fundamental shortage the global market faces in 2019. While niobium substitution is expected to help some steelmakers achieve these rebar standards, it is not expected to be enough to eliminate the deficit in the near term.

There’s only so far ferro-niobium substitution can go: 
Ferro-vanadium prices are up 207% in Europe compared with a year ago, and interest is mounting among consumers to substitute in with ferro-niobium, wherever possible.

“The shift [to ferro-niobium] is under way and that shift will continue the more comfortable engineers get,” Fastmarkets North America non-ferrous editor Chris Kavanagh said.

Ferro-niobium deals are typically agreed on a multi-year, fixed-price basis, rather than being tagged to third-party spot price assessments that fluctuate according to market fundamentals.

“In a fairly normal market we think 10-15% of ferro-vanadium demand could be subbed with ferro-niobium, but with the market where it is now, there’s more incentive to pursue that. The steelmakers can try to be more flexible, but there are restrictions – ferro-niobium works better in some applications than others,” Fastmarkets MB principal consultant Amy Bennett added.

Manganese ore market looks set for downturn:
A downbeat outlook from some manganese panelists sapped confidence in the short-term outlook for the market among audience members.

poll of the audience at the beginning of the session showed 47% to have a positive outlook for manganese ore prices. By the end of the annual panel, the proportion of positive attendees had dropped by 14 percentage points to 33%. Those reporting a negative outlook increased by 6 percentage points to 19% over the event, the remainder had a neutral perspective.

But stockpiled off-spec manganese ore could be hiding underlying tightness:
Manganese ore prices might be more prone to a fall next year, but South African rail freight limitations mean there remain restrictions on production in reality, compared with in theory.

Sales of stockpiled and off-spec ore have been able to bridge some of the production shortfall this year.

“If we didn’t have this material, ore prices would be at $10 per [dry metric tonne unit],” one delegate told Fastmarkets on the sidelines of the conference.

Manganese alloys smelters are feeling a margin squeeze, which should lead to production cuts:
Over-production in the manganese alloy market has weighed on alloy prices despite strong demand levels from the steel sector, several market participants indicated in Lisbon.

In addition to lower alloy prices, early indications on long-term contract negotiations have shown discounts widening compared with levels agreed on this year’s formula contracts, further exacerbating the margin issue.

These two factors, combined with the resilient ore prices, have market participants concerned about the ability of non-integrated smelters to continue to operate in a profitable manner given current production levels.

During a panel, Ferroglobe chief executive officer Pedro Larrea conceded that their operations have already been scaled back in response to the adverse conditions.

Several sources in Lisbon expressed an expectation that more production cutbacks or shutdowns at manganese alloy furnaces will follow, with smelters trying bring the market back into balance.

Manganese flakes market will remain volatile
The manganese flake market is one of the most volatile markets today and will remain so for the near future, Arnaud Vigier, the vice president for manganese alloys sales for Eramet, said.

Production of manganese flakes is concentrated in China, with more than 95% of material produced there. There are very few direct purchases from producers and many intermediaries and traders are involved, Vigier said.

Manganese flake prices started the year at $1,800-1,950 per tonne and have been moving upward for most of 2018. Fastmarkets MB assessed the manganese flake in-warehouse Rotterdam price at $2,100-2,200 per tonne on Friday November 16.

“Speculators brought further volatility by playing on surprise effects, like sudden inspections and production stop orders, and uncertainties about policy finalization,” Vigier said.

The weak Turkish economy could allow chrome market consolidation:
Racing inflation in Turkey combined with a weak economy will put greater strain on the Turkish chrome sector in 2019 than potential currency fluctuations or the repercussions of a trade war between China and the United States, according to Robert Yildirim, president and ceo of Yildirim Group.

Some of Turkey’s smaller players support heavy debts so a deteriorating financial environment could make them vulnerable to take over. “There could be opportunities emerging,” Yildirim said.

Electric vehicle revolution gives nickel potential, but stainless steel remains the driver:
“There is probably 10 times more nickel used in stainless steel, so today [the battery sector] is not really significant,” Jerome Baudelet, Eramet Nickel’s sales and marketing director, said during the panel discussion.

Nickel demand from the battery sector will ramp up to be significant, especially with the shift to 811 batteries, which require a greater concentration of nickel. Some estimates suggest as much as an 800,000 tpy increase in nickel production will be needed to meet demand arising from the adoption of electric vehicles.

“Automakers’ intentions [to add EVs to their fleets] all add up. It’s clear that it’s going to completely change the auto sector,” Baudelet said.