While Brazil is a small player in the chromium market, it is the only country on the South American continent which produces chromium. With a buoyant economy and strong mining sector, Brazil is well placed to expand its footprint in the ferrochrome sector.
By Karan Kumar — Exclusive to Chromium Investing News
Brazil is the only country on the South American continent that produces chromium, containing about 0.3 percent of world reserves and supplying about 1.1 percent of the world’s chromite. While Southern Africa and Kazakhstan hold nearly 95 percent of the world’s chrome reserves, the chromium industry is under threat from Chinese ferrochrome production because China – which has no chrome reserves of its own – imports about 50 percent of its chrome ore from South Africa.
According to the US Geological Survey, Brazil produces chromite ore and ferrochrome. In 2008, Brazil reported chromite ore production of 705,762 tons and chromium ferroalloys production of 199,354 tons. Ferrochrome is a vital ingredient in making stainless steel. While Brazil is a small player compared to South Africa, it could become a more important market as Chinese intentions to buy chrome ore instead of ferrochrome hurt prices of the alloy in the future. China, South Africa’s largest trading partner, imports mainly raw materials from the African country and exports manufactured goods. There are concerns that China is stockpiling chrome, mainly sourced from South Africa, to dictate future market prices.
“The single biggest risk to higher ferrochrome prices is China,” Lara Smith, Managing Director of Core Consultants, a mining advisory firm, told Chromium Investing News in an interview. “The first quarter was characterized by a severe deficit in the ferrochrome market, owing to Eskom buy backs and subsequent cutbacks to South African ferrochrome production. Overall South African producers reduced production by 15 percent, resulting in global output of 2.072 metric tonnes for the quarter. However, while we expect ferrochrome prices to rise, a surplus in the stainless steel market will not allow prices to go unchecked.”
Brazil’s Ferbasa, located in the state of Bahia, is the country’s leading producer of ferrochrome. The company said last month that its charge chrome output fell 18 percent in 2011 to 116,366 tonnes as global demand suffered due to the Eurozone crisis. In addition, the company expects to see a 48 percent increase in chrome resources to 40 million tonnes at its mine in Bahia after a study was implemented two years ago. Ferbasa forecasts a 20 percent increase in charge ferrochrome, also known as high carbon ferrochrome, sales in 2012. Core Consultants’ Smith wrote in a recent report that Ferbasa has announced plans to increase ferrochrome production for 2012 to 143,000 tonnes.
Economic and geopolitical concerns
The Brazilian economy grew 7.5 percent in 2010 and is expected to grow four percent in 2012, according to the US Department of State. Brazil, with about 190 million people, is the world’s seventh-largest economy and is expected to rise to fifth in the next few years. President Dilma Rousseff, who took office in January 2011, has indicated that she intends to continue the former president’s economic policies, including sound fiscal management, inflation control, and a floating exchange rate.
Brazil’s mining sector contributes about two percent to gross domestic product, and the country has large reserves of bauxite, iron ore, niobium, nickel, gold, coal, and phosphates. Iron ore is the most important of Brazil’s mineral exports, generating annual revenue of around $2.3 billion. Brazil is also the world’s largest exporter of niobium, tin, lithium, tantalum, and gemstones.
In September of last year, Brazil revived its long-running anti-dumping feud with China, UPI reported. UPI noted that steel is the biggest thorn in Brazil’s side, and the country wants to discourage Brazilian importers from stockpiling cheaper Chinese steel in preference to local or Latin American brands of the metal. The problem is linked to the Brazilian real’s soaring value, which makes importing more attractive than before. The real has gained 40 percent against the US dollar since the end of 2008.
According to a report by the International Trade Centre, in 2007 Brazil was considered the fourth-largest user of anti-dumping measures among developing countries, behind India, Argentina, and South Africa. Between 1988 and 2007, Brazil initiated 288 investigations related to trade remedies, the report showed, adding that “the fact that almost half of the investigations terminated without imposition of measures indicates that the Brazilian trade remedies system does not seem to be protectionist of the domestic industry. The fact that only 1% of the duties imposed were suspended does not mean this is an unusual practice in Brazil.”
Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.