The rise and rise of ferro-chrome: Where next for the alloy?
Like many other commodities, ferro-chrome prices in Europe reacted swiftly and sharply to the Russian invasion of Ukraine and have continued to do so for several weeks
Russia is not the largest player in terms of overall ferro-chrome production, with total annual capacity for the alloy of 440,000 tonnes in 2020, according to the US Geological Survey, versus China’s capacity of 11 million tonnes.
But the influence of Russia’s actions is clear – for example, earlier in March, Turkish industrial conglomerate Yildirim Group declared force majeure at Tikhvin Ferroalloys, its high-carbon ferro-chrome operation in Russia, because it was no longer able to deliver material.
And with the imposition of international sanctions, including, in recent days, G7 nations moving to revoke Russia’s “Most Favored Nation” status, market sources agree buyers are now clearly shying away from any material of Russian origin, irrespective of whether sanctions directly apply.
A few key factors are at play in ferro-chrome markets: supply, now that the world’s three major shipping lines are not calling at Russian ports, and especially supply of low-carbon material, which is more commonly produced in Russia than high carbon; demand, as market participants reported a rush to get hold of material to make sure supply needs were covered; and the knock-on effect of rising energy prices.
Indeed, in a market already heavily affected by the rises in energy prices over the last year and more, it was almost inevitable that any factor causing further input cost increases would bleed through into spot prices.
At the same time, shipping lines Maersk, MSC and CMA CGM have all said they have suspended new shipments to and from Russia, with logistical problems likely to intensify in the coming weeks.
And ferro-chrome sellers have reported a sudden upswing in demand, focused on high-carbon material initially, linking it to panic buying – so much so that they could not keep up – and prices reacted accordingly.
Between February 22 – the last pricing session before the news broke of Russia’s invasion of Ukraine – and March 1, Fastmarkets’ price assessment of ferro-chrome high carbon 6-8.5% C, basis 65-70% Cr, max 1.5% Si, delivered Europe, rose to $1.88-2.15 per lb from $1.77-2.02 per lb.
By March 8, the price had risen to $2.24-2.70 per lb, and as of April 5, it stands at $3.02-3.30 per lb. The increases between March 22 and March 29, and between March 29 and April 5, were significantly less pronounced, but several market participants have said they still see room for the price to go up further.
Likewise, Fastmarkets’ records show comparably strong liquidity on the fortnightly assessment of ferro-chrome 0.10% C, average 65-70% Cr, delivered Europe, with prices rising from $4.05-4.50 per lb on March 1, to $5.10-5.65 per lb on March 15, and to $5.75-6.70 per lb on March 29.
One market source has said he believes low-carbon ferro-chrome prices may settle around their current levels, while other market participants have suggested that as long as the war in Ukraine persists, there is scope for more increases.
In ordinary circumstances, most market participants would agree that such extreme price rises, in such a short space of time, more than likely could not be sustained.
For example, in 2008, when low-carbon ferro-chrome prices reached their last record high, the major rise in prices that began in April had plateaued by June, with declines evident by July, which continued into the end of the year, and the beginning of 2009.
But what participants agree on now is that the market is not facing ordinary circumstances; it is facing uncharted territory, with little or nothing to guide it.
Here, Fastmarkets set out the views of a few market participants on the situation as it has been recently and what, as far as they can tell, is likely to happen in the near term.
The buyers’ view
One buyer told Fastmarkets that he had recently entered the spot market for both high-carbon and low-carbon material. Buying high carbon, he said, was relatively straightforward.
“But low carbon is a bit more interesting,” he said. “I’ve had three offers, and the prices I’ve had are $5.70-5.90, delivered, for 0.1% carbon. If you want [non-Russian], it’s [higher].”
Other sources agree that there is a growing gap between prices for ferro-chrome of Russian origin and of non-Russian origin, with the former selling more cheaply.
At the same time, while several market participants have said availability of low-carbon material is now extremely low, the buyer questioned how tight supply really is, saying he still sees an opportunity to bid lower.
“When I mentioned lower numbers, [the seller] didn’t seem perturbed,” he said. “I don’t know whether more material has become available, or it never stopped being available.”
Alongside this, he added, volatility in other markets such as nickel continues to have a knock-on effect on ferro-chrome.
“Because nickel is so volatile, nobody really knows how on earth to price it, especially with premiums,” he said.
This has led to some demand destruction, he said, which could turn people’s attention toward the chrome market as a substitute.
The volatility of nickel prices on the London Metal Exchange has also led European stainless steel distributors to raise prices in recent weeks, with stainless mills holding back on offering newly rolled material – although the demand outlook is less than positive, with concerns that higher prices will force projects in end markets to be canceled.
As a result, the future also remains uncertain for ferro-chrome, the buyer said, but perhaps the best to be hoped for from a buyer’s point of view is that prices will at least moderate.
A second buyer added that he sees the situation in ferro-chrome markets in a similar light to ferro-molybdenum and ferro-vanadium, which prices for in Europe have corrected downward in recent weeks.
“We were not in the market for additional material, and the same for high carbon, but I can imagine that the same situation we see on other products will happen on chrome,” he said.
“From my point of view, I think some guys decided to sell [ferro-chrome] now and have the safety of earning money on the material they sell,” he added.
The producers’ view
Under normal conditions, price rises of this magnitude would be good news for producers, allowing them to regain some of the margin lost to rising input costs, and especially energy.
But with energy prices still on the rise in the wake of the invasion of Ukraine, producers remain under pressure – to keep up with costs, and, in recent weeks, to keep up with demand.
“Energy prices vary from one day to the other,” a high-carbon ferro-chrome producer source said.
Also in normal conditions, he said, warmer weather in April would reduce energy consumption and cost, and while this may still be the case for European households, it will not offer any respite to alloy producers.
On the supply side, power prices are strongly linked to Russian gas supply, and at the same time, newswires report, Russia is now demanding payment for gas in roubles, rather than euros or dollars, as a way to compensate for the decline in the value of the Russian currency.
“So far, April power prices are still expected to be at least €230-250 [$253-275] per megawatt hour [MWh],” the producer source said.
“We are now asking for offers for April [electricity] and we still face high prices.”
In the low-carbon ferro-chrome market, where exposure to the war in Ukraine is arguably more pronounced, a second producer source said he believes that as long as the conflict persists, there will be room for prices to rise, especially because buyers are now reportedly avoiding Russian material – even as prices hit all-time highs.
“[Some people] are not offering to the spot market because of logistics problems and they need to supply their long-term agreement quantities. There are only a few producers available who are quoting into the spot market,” he said.
“It will be dependent on how long the war lasts. Of course, we want to have peace, but [now] all the customers that rely on Russian material are… going to purchase from the spot market.”
For stainless and special steel mills or foundries with the option to add a surcharge for nickel or ferro-chrome, continuing to produce will not be an issue, he added, even with rising raw material costs.
It is not clear what the ceiling – or floor – price will be, a third producer source said, but because the increase in prices has been so dramatic, there is some nervousness over whether it can be sustained.
“These are not stable market conditions,” the third producer source said.
The trader’s view
For those traders who purchased material earlier in 2022, or even earlier in March, there is still room to sell and make a profit even if ferro-chrome prices decline from their current levels.
“You can offer to sell lower and still make money,” a trader told Fastmarkets.
But as it stands, the upward part of the cycle is not yet over, the trader added.
“My gut feeling is that we will see prices going up,” he said. “Shipping lines are not going to Russia, and even if they did say vessels could go to St Petersburg, it will take 30-40 days by the time it gets shipped out.”
The trader also agreed with the view that supply of ferro-chrome is tight – for material from other sources, freight costs remain a key issue, with Lloyd’s List recently reporting that contract ocean freight rates had doubled year-on-year from 2021 to 2022.
There is also the issue of transit time, and, in the case of Chinese material, for example, export duties. Alongside that, there may be differences in specification to contend with.
“If you look at everything, we will see tightness, especially on low carbon in Europe,” the trader said.
The distributors’ view
The key priority now, according to distributors, is making sure long-term contract obligations are fulfilled.
“In the spot market, we try to sell if the price is interesting, but it’s our second priority,” one distributor told Fastmarkets.
“We’re very careful in terms of what we offer and to whom we sell. That limits the amount of supply available,” he added.
A second distributor agreed, saying the decision had been made to keep stock on hand and focus on long-term customers.
He also cited recent announcements of increased defence spending – for example, from Germany and the United States – as possible reasons to expect increased demand for ferro-chrome, linked to its used in aerospace applications.
But the major increases in prices of both high- and low-carbon material may be coming to an end, he said.
“Honestly, I think prices will settle now, but won’t go down for some time. From the demand side, I think this level is reasonable, and we shouldn’t see any further major increases. However, this is as much supply driven as it is demand driven,” he said.
The first distributor also cited input cost pressures, pointing to the energy-intensive nature of ferro-chrome production.
“It’s very difficult to produce anything this energy intensive. There are massive pressures in terms of input costs. We’re trying to navigate this,” he said.
There is a possibility that demand could shrink, with consumers potentially reducing their intake to keep costs down, but availability will not grow, the first distributor added.
“Demand might be smaller because people aren’t willing to buy large tonnages, but supply is shrinking. There is a shortfall in the market,” the distributor said.
“It’s a completely different situation – we’re in new territory.”
Fastmarkets analyst’s view
Robert Cartman, a senior metals analyst at Fastmarkets, also noted the heavy influence of energy prices, which are now 10-15 times higher than they were about 18 months ago.
“This would have added about 80-100 cents per lb chrome contained in costs on 65% high-carbon ferro-chrome, based on a quick calculation for a smelter in the European Union,” Cartman said.
“Energy prices gradually increased through late 2020 and 2021, before really beginning to spike in the fourth quarter of 2021, and then again this year following the Russian invasion of Ukraine.”
High-carbon ferro-chrome prices were on the rise late last year, but the fact that they have “gone into overdrive” since news broke of the invasion of Ukraine suggests this now very much a driving factor, Cartman said.
He added that while the rise in low-carbon ferro-chrome prices may be linked to Russia’s position as a key supplier, for high-carbon material, the recent moves may be more related to more panic buying.
“Changes in costs other than energy – i.e. chrome ore, reductants – aren’t enough to explain it, and are much smaller in magnitude than the changes seen in energy prices anyway,” Cartman said.
The risk with moves driven by panic buying is that prices have the potential to come down as sharply as they rose once this kind of buying subsides, he added.
“Vertical lines on a price chart are rarely followed by a plateau, and I don’t think this time will be any different,” Cartman said.