As we said back at the beginning of March in a MetalMiner article, ferrochrome prices are being squeezed by a tight supply market limited by power shortages in South Africa, the largest producer. Even though there have been and will continue to be substantial re-starts around the world, HSBC estimates a 26 percent increase in capacity. Growing demand from the stainless steel industry is keeping pace and holds out the possibility of a market deficit next year if there are any further problems in South African power supply. The main outlet for ferrochrome is in stainless steel production and after three years of declining production and idling of mill capacity the market has now picked up across all geographic regions. A Nippon Steel & Sumikin Stainless (NSSC) official is quoted in a Reuters article as saying the European stainless industry would be back on full capacity through June of this year. NSSC is Japan’s biggest stainless steel maker. Stainless production is highly cyclical and is coming back strongly from a much reduced 2009 base over the coming year. HSBC is predicting a 9 percent year-over-year increase in ferrochrome production growth in 2010 and 6 percent in 2011 as a result of running at a deficit last year as well as robust stainless steel industry demand this year.
After rising in Q2 by 35c/lb from the previous quarter to $1.44 per lb, at their quarterly ferrochrome price fixing this month, NSCC say their primary concern was keeping a stable source of supply suggesting they too see supply constraints as an issue going forward. The European benchmark price for ferrochrome in the second quarter has increased to $1.36 per lb. This represents a 35 percent increase on the price of $1.01 per lb set in the January to March period. The benchmark was at $1.03 in the fourth quarter of 2009 and 89 cents in the third quarter, according to a Telegraph investor report.
All major producing countries are expected to show significant increases in HC ferrochrome production this year with the exception of China. HSBC is expecting South Africa to jump from 2,317,000 tons to 3,389,000 tons and Kazakhstan to jump from 890,000 tons to 1,230,000 tons, but China to fall from 1,306,000 tons to 1,000,000 tons.
Unless power worries in South Africa re-occur, we would expect this latest round of price increases to probably establish a new level for the rest of the year. At these levels, the current supply market situation is fairly well factored in along with tight but balanced stainless demand for 2010. But higher raw material costs will be reflected in stainless premiums slowing the migration from austenitic to ferritic grades and power supply issues remain a risk to the upside for prices later this year.