Output Of Stainless Steel In Q1 / 09 Shrunk To Scale In 1981 And Its Demand Cooled Down

Let us trace the realities on supply and demand of ferro-chrome in Japan for the first quarter (January – March) of 2009. In consequence of that the production of stainless steel in Japan for January – March quarter of 2009 had shrunken to the scales in 1981 – 1982, the matters, which consumption of ferro-chrome in Japan had a considerable decrease and stocks of ferro-chrome at consumers had a sudden increase, came up to the surface. The quantities of high carbon ferro-chrome and low carbon ferro-chrome produced, imported, consumed and stocked by Japan during 2004 to January – March of 2009 were as per the table shown below.

The output of stainless steel products (hot-rolled products) in Japan for January – March quarter of 2009 was approximately 372,000 tons, having decreased to the levels in 1981 and 1982. Reflecting a substantial reduction in automobile production to cope with a sudden deterioration of the world economy, the production of stainless steel in Japan at the stage of October – December quarter of 2008 had decreased to the scale of 611,000 tons and that in January – March quarter of 2009 had a further decline of about 40% compared to that in the preceding quarter (October – December of 2008), having also decreased by 58% from that in April – June quarter of 2008.

Consequently, the quantity of high carbon ferro-chrome consumed in Japan for January – March quarter of 2009 was 82,874 tons, having recorded a large decrease and had a decline of 61% compared with that (213,582 tons) for the same quarter of 2008. In order to maintain a stable supply of ferro-chrome, Japan has been importing ferro-chrome under long-term contracts and, therefore, is unable to comply sensitively with a sudden decrease of the demand for ferro-chrome in Japan. For a reference, Japan imported 153,869 tons of high carbon ferro-chrome (charge chrome) in January – March quarter of 2009 and, in comparison with an extent of the consumption, the imports had a small decrease. For a reference, the quantities of high carbon ferro-chrome imported into Japan in the past quarters were 245,155 tons in October – December quarter of 2008 and 172,821 tons in January – March quarter of 2008 respectively.

The policy to secure stably raw materials has resulted in reverse. The total quantity of high carbon ferro-chrome stocked at steel companies of Japan as of the 31st March of 2009 came to 247,512 tons, corresponding to 8.4 months against the consumption on monthly base. In addition to normal imports of high carbon ferro-chrome into Japan, many contracts to import high carbon ferro-chrome on consignment base have existed. Namely, trading companies import high carbon ferro-chrome into Japan and store these cargoes at bonded warehouses. In accordance with requirements from steel mills, trading companies deliver the stocked cargoes to mills. When these cargoes held by trading companies are taken into account, it is supposed that the stocks of high carbon ferro-chrome in Japan will reach 10 – 12 months of the consumption on monthly base.

However, this extraordinary situation on supply of high carbon ferro-chrome has appeared only in Japan, having obeyed strictly the contracts, and steel companies in Europe, China and South Korea have drastically cancelled their existing long-term contracts on imports from October of 2008 and are endeavoring to reduce their stocks of high carbon ferro-chrome as much as possible. Excluding Europe and the USA (based on spot contracts for purchases of ferro-chrome) where are still suffering from a depression in production of stainless steel, such other countries as China, South Korea and Taiwan have already resumed to conclude new contracts on imports of high carbon ferro-chrome and these activities have made a clear contrast with Japan.

The background is that, by means of having cancelled the existing contracts on imports of raw materials, steel companies in these countries have finished to reduce their stocks to certain levels, but also it is not negligible that they have turned to increase their production of stainless steel on a basic tone from April of this year. Furthermore, in case of China, this country dislikes to use high carbon ferro-chrome produced in China as its price is expensive and has shifted to import this ferro-alloy from overseas sources at low prices.

China imported 363,000 tons of high carbon ferro-chrome in January – March quarter of 2009, having decreased by 10% compared with that (404,000 tons) in the same quarter of 2008, and China's imports of high carbon ferro-chrome in the first quarter of 2009 were remarkable, because the world consumption of this ferro-alloy in 2009 is anticipated to have a decline of 24% from that in 2008. A scale of high carbon ferro-chrome imported by China in the first quarter of 2009 was substantial, since the global volumes to trade ferro-chrome have shrunken, and has put a considerable influence on the market. For a reference, China imported 237,000 tons of high carbon ferro-chrome in April of 2009.

The world output of crude stainless steel in 2009 is estimated to come to 22.0 million tons by a decrease of 16% compared to that (26.2 million tons) in 2008. In view of this situation at present, it is natural that a decrease of the world demand for ferro-chrome will be larger than a reduction in the world production of stainless steel by taking into consideration of de-stocking, and South African producers have been attacked by this substantial decline of the world demand for ferro-chrome.

The world production of ferro-chrome, mainly in South Africa, for January – March quarter of 2009 were driven to decrease to 30% of its nominal capacity and major producers in South Africa, comprising Samancor Chrome, Xstrata Alloys, and so on, had maintained the structure to produce charge chrome on the scales of 10 – 20% against their nominal capacities. However, producers in Southern Africa have turned from April – June quarter of 2009 to recover their production of charge chrome on a basic tone and, as a matter of fact, Samancor Chrome is now operating their electric furnaces by 50% of all furnaces and IMF by 30%. Zimasco and Hernic Ferrochrome had once suspended to operate all electric furnaces but have now determined to resume operations of these idled furnaces.

The demand for ferro-chrome in Europe and Japan is still far from a certain recovery but, in view of the bright color seen in China, South Korea and Taiwan, a key point to rise price of high carbon ferro-chrome is up to when is China able to continue their demand for imports of ferro-chrome.

The output of stainless steel in China for full year of 2009 has been revised from an estimation in the beginning of 2009 to 7.30 million tons by an increase of 200,000 – 300,000 tons from that produced in 2008 (according to an anticipation by Eramet) but the quantity of high carbon ferro-chrome already imported by China in 2009 was larger than that an expansion in stainless steel production. Owing to the aggressive sales of Indian high carbon ferro-chrome (charge chrome) at discounted prices, market price of this ferro-alloys in January – March quarter of 2009 was in the range of 58 – 60 US-Cents per lb. of Cr CIF Japan but has now risen to a level of 65 – 68 US-Cents CIF. This price is also possible to apply to the market in Europe and, by taking a chance on the case that market price of charge chrome is bottoming out, speculative imports of high carbon ferro-chrome are going to increase.

South Africa is a main country to produce ferro-chrome in the world but has been suffering from many factors to raise the cost for this production, which are a raise of electric power fee from June of 2009 (to raise by 34% causing to increase the cost for production of charge chrome by 2 – 3 US-Cents per lb. of Cr), the strengthened exchange rate of South African Rand against US-Dollar by 20% (US$1.00 : R.7.86 breaking the exchange rate of US$1.00 : R.8), and so on, and South African producers have had a strong intention to rise the benchmark price of charge chrome by more than 10 US-Cents per lb. of Cr for shipments in July – September quarter.