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Trump’s Tariffs Affect Chrome Markets

Time:Thu, 12 Apr 2018 14:26:38 +0800

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BY In our latest Ferrochrome Monthly, Core Consultants acknowledged a vast improvement in the European ferrochrome benchmark price. Prices soared from $1.18/lb in the first quarter to a whopping $1.42/lb in the second quarter 2018. This represents a rise of 20.3% q.o.q and was entirely unanticipated on our part.

However, rising costs for global ferrochrome producers, coupled with the appreciation of the South African rand and increasing costs to suppliers have ensured a rally in the market. Although we caution that this rally has so far failed to gain support in China

Since the benchmark was announced in March, ferrochrome prices in China have faltered. While raw material prices remain relatively high we expect this to be short-lived.  Total chrome ore stocks at Chinese ports have increased from 2.45m tonnes in February to 2.74m tonnes at the end of March, resulting in a market which is heavily oversupplied with little buying interest. This gives power to the stainless steel mills to limit tender prices, in turn forcing ferrochrome producers to place downward pressure on ore prices in the coming weeks. Already there have been rumours that May’s tender prices should be RMB500/tonne ($79/tonne) lower.

Moreover, stringent environmental controls maintain sway over ferroalloy prices in China, and stainless steel mills will have to force down ferrochrome purchase prices in an attempt to control costs. Large quantities of expensive future cargoes have been arriving at China’s ports throughout March, but since the beginning of April, current production costs at these tender rates cannot accommodate this new cargo resulting in many smelters planning to either reduce or suspend production entirely.

Looking at the stainless steel market, March was characterised by climbing stainless steel inventories. Stocks remained high after the Spring Festival, dashing suppliers’ hopes of renewed purchases after the holidays.

Increasing tensions between the USA and China have further stunted a struggling market. In terms of the US tariffs, President Trump announced a 25% levy on all steel imports into the United States, effective from 23 March. Many American stainless steel producers and distributors increased prices immediately. From a ferrochrome perspective, this has enabled suppliers to keep prices at a high level of between $1.4-1.5/lb, above the European benchmark price. Furthermore, we have seen a small uptick in the level of spot market activity in the United States.

In Europe, despite the perception of strong stainless steel demand, flat product values slipped in March and are expected to fall further in April. This decline is based somewhat on market sentiment as LME nickel prices are believed to have passed their peak for the current cycle. This is starting to affect the European ferrochrome spot market which has shown little movement in the last weeks of March. Prices are trending lower, but so far haven’t been too bad, with $1.23/lb for HC-FeCr being the lowest price reported to us so far.

Source: Core Consultants 


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