The past few years have been difficult for the chromium market and 2016 was no exception.
The past few years have been difficult for the chromium market and 2016 was no exception.By the end of the first quarter, chromite and ferrochrome prices were at six-year lows, due to falling production costs together with oversupply and slow demand.
But the outlook for chromium demand growth is positive, with predictions that in 2017 ferrochrome prices will remain strong, as the market has started to shift towards higher-value products and construction projects that involve more steel.
Here’s a review of what happened in the last twelve months and what is ahead in 2017 for the industrial metal’s market.
A Closer Look at the Market
The world’s chromite consumption totalled 29 million metric tonnes in 2015 with 92 percent consumed in metallurgical applications according to Roskill.
Asia Pacific continues to hold the maximum market share in the global ferrochromium market, in particular China and India. In terms of volume, the chromium mining market in that region is expected to reach 17 million metric tons by 2020, growing at a compound annual growth rate of more than 5 percent, Technavio reported.
International Chromium Development Association market research analyst Loïc Racon said that the chromium market was “awakening” and that momentum would continue to increase, owing to Chinese demand.
For the industrial metal’s future, all hopes are in an increasing steel production, as about 60 percent of its demand comes from that industry. Roskill projected that total output of stainless steel will grow at 4 percent to 2026 and will continue to drive demand for chromite and ferrochrome.
Ferrochromium, an alloy of iron and chromium containing 50 to 70 percent of chromium, is having its maximum share of consumption in the steel industry and demand is also forecasted to rise.
But supply is also expected to grow at a steady pace. Southern Africa, that hosts about 90 percent of the world’s chromite reserves and resources, has reserves of 3.1Bnt and estimated resources of 5.5Bnt.
Even though only four of seven South African producers are currently in production, CRU senior ferrochrome consultant Mark Beveridge described the recovery in that country as “dramatic”.
“Broadly speaking, consolidation appears to be the simplest means for South Africa to make the most of its existing charge chrome capacity in future,” he told Mining Weekly.
In addition, trends in scrap usage are expected to become an important factor in the metal’s market. In 2015, around 30 percent of the chromium units in stainless steel were derived from scrap.
Roskill predicts that this will rise to nearly 45 percent by 2026 as scrap usage rates increase in China and other emerging economies, potentially reducing demand for virgin chromite.
Price Recovery in 2016
In 2015, Chromium prices suffered the least compared to other minor metals, dropping only by 11 percent. However, in 2016 prices have been slowly improving and, according to Roskill, chrome ore prices had recovered to their highest levels since the global economic downturn by the third quarter.
UG2 chrome ore (42 percent) prices increased from US$85/t in January to US$210/t at the end of September, and have since risen to over US$380/t. South African 44 percent concentrate was up to US$410/t in November.
Beveridge told Mining Weekly that chrome ore prices had rebounded substantially on strong second-quarter Chinese demand.
“A combination of stimulus-linked demand for ferrochrome in China and a relative absence of chrome inventory led to a scrabble for South African ore,” he said.
Price recovery, and a series of takeovers, started to consolidate and revive the South African sector as bigger producers acquired the assets of smaller, struggling operations.
For Roskill, it is likely that ferrochrome prices will remain strong in 2017. Thereafter, with higher prices pushing for more and more ferrochrome production from currently unutilised capacity in China, Kazakhstan, India and idled capacity in South Africa, the market may find itself in oversupply, which will eventually drive prices down.
Although fears of an oversupplied market are still around, investors should keep an eye on how South Africa consolidates its production and how China’s demand grows. These factors could be key in a turnaround in prices and could also help stabilize the market. Investors interested in the industrial metal may want to watch out for how the steel demand grows with the political developments that will take place in 2017, as major infrastructure plans could be implemented and drive demand in the chromium market.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.