WEBINAR: Chrome ore most vulnerable to supply disruption during 2020-2021 – poll

Chrome ore is the raw material in ferro-alloy production that is most likely to be subject to supply disruptions during 2020-2021, according to a poll conducted during Fastmarkets’ webinar on Covid-19 and Asian ferro-alloy markets on Tuesday June 30.

About 42% of respondents said chrome ore would be most prone to disrupted supply or limited availability, while manganese ore received 29% of the vote and the remainder went to either vanadium pentoxide or no supply disruptions.

Concerns around chrome ore supply mainly arise from the industry’s heavy dependence on South Africa, which accounts for 58% of the world’s chrome ore.

China, the world’s largest consumer for chrome ore, imported approximately 15 million tonnes of chrome ore in 2019, of which nearly 80% originated South Africa, according to customs data. And in May, China recorded a significant drop in its chrome ore imports due to the disruptions to South Africa’s ore production and export activities since the African country entered a nationwide lockdown in late March.

In comparison, supply for manganese ore is more diversified; China imported around 43% of its manganese ore from South Africa in April, while 26% came from Australia, and the rest from Gabon, Brazil and several other countries, customs data showed.

“Clearly in the chrome market, all the eggs are in that one basket. And if it were the case that South Africa were impacted again [by the Covid-19 pandemic], then sure enough, as our price records show, there would be some serious impact on chrome ore, possibly more than the other raw materials,” Alistair Ramsay, head of Fastmarkets’ research division, said.

From late March through April, fears over supply disruptions translated into a surge in both chrome ore and manganese ore prices.

Fastmarkets’ chrome ore South Africa UG2 concentrates index basis 42%, cif China stood at $147 per tonne on April 24, the final calculation of that month, to show a total gain of $33 per tonne (29%) from $114 per tonne on April 3.

Similarly, Fastmarkets’ manganese ore index, 37% Mn, cif Tianjin jumped by 69.3% to $6.79 per dry metric tonne unit (dmtu) on April 24 from $4.01 per dmtu on March 27.

And the heavy reliance of chrome from South Africa partly contributed to the subsequent divergence of the two markets when South Africa eased its lockdown from May. Chrome ore prices continued to climb at a time when the upward trend in the manganese ore price lost momentum.

Fastmarkets’ UG2 chrome ore index resumed a four-week rally of $22 per tonne (15%) from May 1, to reach $169 per tonne on May 29, despite the 37% manganese ore assessment experiencing a steady downtrend to $5.93 per dmtu on May 29, down by 11% from $6.64 per dmtu on May 11.

To cope with over-dependency
While Covid-19-related disruptions have brought the subject of how to maintain sustainable ferro-alloy raw material supply to front of many market participants’ minds, building up buffer stock is considered to be one of the most efficient ways to scale down the risks to supply uncertainty, according to the panel discussion during the webinar.

Buffer stock usually refers to when individual companies build up a “safe” level of inventory to sustain production and operations. And given the fact that most of the chrome and manganese resources are centered in countries outside of China, primarily in South Africa, it is more practical for Chinese companies to build up stocks instead of diversifying their supply, attendees of the webinar heard.

“Individual companies should stockpile their inventory, as well as encourage tech innovation and sustainability to increase the efficiency in utilizing these raw material,” the president and chief engineer of the China Metallurgical Industry Planning & Research Institute, Li Xinchuang, said.

What is equally crucial, as pointed out by the panel, is that the Chinese government should implement policies to secure these raw materials for ferro-alloy production.

“In recent years, we saw the state stockpile 24 strategic metals including copper, gold and cobalt, and similar policies should also be carried out in the ferro-alloy raw material sector due to their scarcity in China,” Li said.

“We also have to highlight international co-operation by encouraging overseas investment and strengthening our cooperation with international mining companies to develop long-term and stable supply of these raw materials,” Li added.

To watch a recording of the webinar, click here.

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