Tight ferrochrome supply in October alleviated producer losses
SHANGHAI – The strong consumption of stainless steel extended after the National Day holiday, which prompted a further increase in the output of steel mills. Therefore, the demand for ferrochrome remained at a high level. However, the chrome ore prices rose in October. The growing smelting costs precipitated continuous losses to ferrochrome plants, who were obviously reluctant to resume the production. As a result, the supply of ferrochrome was basically unchanged.
Amid stable supply and increasing demand, the ferrochrome spot supply shortage tightened. Although some ferrochrome plants and traders still had some inventories at hand due to the previous surplus, they were unwilling to sell at discounts considering the high costs earlier. Most ferrochrome plants under operation mainly focused on the delivery of long-term orders, thus the available supply in the trading market was rare.
In order to achieve the production target of the year, stainless steel plants will ramp up the production for the rest of the year, which means that a sharp decline in stainless steel production in November-December will be unlikely. Instead, stainless steel plants will have a large demand for ferrochrome, hence the shortage of ferrochrome is expected to sustain. However, the ferrochrome prices kept going up at the same time, which, in late October, surpassed its average price in July-August. The inventories that were restocked on high costs thus were gradually released to the spot market, which, coupled with the concentrated arrivals of cheap chrome ore, trigger a decrease in chrome ore prices. In this scenario, the cost support for ferrochrome prices was weakened. The market confidence was undermined, and some manufacturers, under financial pressure and for pessimism about the market outlook, sold their goods at discounts in order to increase cash flows. In spite of the expectations that the ferrochrome production will increase in November, the shortage of ferrochrome supply will still hardly be eased. In addition, the strike in South Africa has injected more confidence into large miners, who will hold more firm to their prices. Therefore, the ferrochrome costs are unlikely to fall steeply. It is expected that ferrochrome prices will stay resilient with cost support in November.
