Sporadic reports of mine closures and special working arrangements have gathered momentum during March and into April, in some cases sparking fears of ore supply shortages.
Few places have had quite the profound impact that closures in South Africa have caused.
South African President Cyril Ramaphosa announced in an address to the nation Monday that the country will enter a 21-day nationwide lockdown from midnight on Thursday, March 26, with the country’s metals and mining operations to be placed on care and maintenance.
As elsewhere, the move is in response to the spread of the novel coronavirus (2019-nCoV) in the country and stands in welcome stark contrast to presidents of countries like Brazil and Nicaragua, who have all but denied the virus’ existence.
Hats off to the president for acting promptly and responsibly, but the knock-on impact is the country’s chrome ore mines and refineries have closed as of the end of March with Glencore’s chrome joint venture with Merafe Resources, Samancor, Tharisa and Jubilee all closing down, with some having to declare force majeure on shipments.
South Africa accounts for 60% of the world’s chrome production, Reuters reports, and supplied 83% of China’s imports of chrome ore last year.
Of the world’s 36 million tons, South Africa produced 23 million tons last year. To put it in perspective, the country’s role in the chrome market is bigger than Saudi Arabia’s to oil or Chile’s to copper.
South Africa’s importance to the chrome market is so significant that the closure of mines has delayed the usual price-fixing required for the May stainless steel surcharges and stymied agreement on the second-quarter European Chrome price which depends in turn on the South African producers’ price announcements.
In the absence of an official chrome producers price agreement, it is possible stainless producers will decide to carry the April surcharge unchanged into May, despite most base and minor metals weakening, a final decision remains pending as we go to press.
Chrome is by far the most important element in the surcharge price, accounting for at least twice and as much as 10 times that of nickel (depending on the percentage of each element in a particular grade).
Such a shock to supply as the closure of 60% of the world’s mines would normally drive up prices. However, demand is so weak because of industry closures that the news had little impact on otherwise weak stainless steel prices.
Stainless steel alloy surcharges in Europe are this week at 14-month lows as nickel prices continue their relentless downward slide, undermined by the same COVID-19 demand destruction.