Being Stimulated By Mood To Increase Stainless Steel Production In China And Effect Of Its Cutback

The international price of high carbon ferro-chrome (charge chrome) had experienced a long and dark tunnel but has at last turned to rise. In view of the fact that China has inclined to produce ferro-chrome by themselves, price of chrome ore as raw material is also anticipated to rebound, following this aspect of high carbon ferro-chrome.

According to a report compiled and released by ISSF (The International Stainless Steel Federation), the world output of stainless steel in January – March quarter of 2009 came to 4.832 million tons, having had a considerable decrease of 34.5% compared with that in the same quarter of 2008. However, owing to a recovery in production of stainless steel started from April to May in China, South Korea and Taiwan, the circumstances surrounding ferro-chrome are moving to change gradually and, in the fevered market of China, price of high carbon ferro-chrome has risen again by 1 – 2 US-Cents per lb. of Cr in last week. Therefore, even spot price of high carbon ferro-chrome produced in India (with Cr 58 – 60%) has risen to a level of 69 – 72 US-Cents per lb. of Cr CIF. The market price of normal high carbon ferro-chrome offered recently from overseas sources has risen to 75 US-Cents per lb. of Cr CIF.

On the other hand, the negotiations on price of South African charge chrome for shipments to Europe in July – September quarter of 2009 have been taken place from last week and South African producers have certainly requested to rise the price from that (69 US-Cents) fixed for April – June quarter. It was informed that South Africans have targeted to rise the price for July – September quarter to a level of 90 US-Cents per lb. of Cr. It seems to be inevitable that Eskom intends to raise electric power fee in 2009 by 34%, and the exchange rate of South African Rand against US-Dollar has strengthened by 20% from the beginning of 2009. In addition, South African producers have continued to operate their facilities by 20 – 30% of nominal capacities for 8 months and this countermeasure has caused to push up the cost for production of charge chrome. The work to reduce the stocks of charge chrome at producers has progressed. However, South Africa enters into winter season to apply higher fee of electric power from July to August and, therefore, many cases to maintain the structure to reduce production of charge chrome will arise.

Stainless steel mills in Europe have the initiative to conduct price of South African charge chrome but the situation to produce stainless steel in Europe has been still depressed and European mills are unable to break away from this slump. (It is said that, among four stainless steel companies in Europe, one company will be an excess because of the depressed demand for stainless steel). However, the price of South African charge chrome to be shipped in July – September quarter has a big probability to rise. It is still not clear yet how extent does a recovery in production of stainless steel in China, South Korea and Taiwan, excluding that in Japan, put a pressure on the negotiations to settle benchmark price of South African charge chrome for shipments in July – September quarter, but it is anticipated that, by taking into consideration of the recovery to be expected in October – December quarter, stainless steel companies in Europe will agree to a small revision of the benchmark price for charge chrome.

A fever in China to produce more stainless steel has been felt somewhat with an extraordinary sentiment. However, the quantity of stainless steel to be produced in China for 2009 was estimated in the beginning of the year to be a scale of 6.80 million tons, which was less than that (6.94 million tons) produced in China for 2008, but the present situation has been viewed to produce 7.30 – 7.50 million tons per annum of crude stainless steel in China for 2009 as a normal opinion. Also, some of the parties concerned said that China would produce 8.00 million tons in 2009. In addition to a positive forecast which China has a possibility to sell 10 million cars in 2009, being stimulated by an expansion in Chinese production of stainless steel, natural features in China to excite everything have caused to increase suddenly imports of nickels into China and to produce more ferro-chrome in China.

Domestic price of charge chrome in Huabei district of China has currently risen to a level of CNY6,200 – 7,000 per metric ton of material (corresponding to 82.7 – 85.0 US-Cents per lb. of Cr including 17% of value-added tax). Chinese stainless steel mills are bidding at CNY6,000 per ton to purchase high carbon ferro-chrome (charge chrome) but it was also informed that a stainless steel company in Huabei district held a tender to purchase charge chrome and the lowest price bidden was CNY6,200 per ton. Owing to a sudden increase in production of stainless steel, the stocks of high carbon ferro-chrome held by major stainless steel companies in China are supposed to have shrunken to a portion of about one month against its consumption per month.

In preparation for settlement of accounts to be closed on the 31st March of 2009, Indian suppliers had taken the aggressive to sell high carbon ferro-chrome (charge chrome) at discounted prices for shipments in January – March quarter of 2009 and, consequently, even Chinese producers were unable to compete with Indian product imported into China, having allowed considerable imports of Indian high carbon ferro-chrome into China. For a reference, China imported 360,000 tons of high carbon ferro-chrome in January – March quarter of 2009, including 116,000 tons of Indian product. High carbon ferro-chrome produced in India has originally destined to export for Europe and the USA but has suddenly turned their exports to China with a substantial quantity. This change of Indian exports has been caused by the emergency, which the production of stainless steel in Europe and the USA has decreased to half of its normal output. Since a long time ago, China is the market for India to dispose of ferro-chrome at discounted prices in case of an emergency. The price of Indian high carbon ferro-chrome at that time (January – March of 2009) had fallen to a level of 56 – 58 US-Cents per lb. of Cr CIF China. However, under the present situation as mentioned above, the price of Indian product has risen to a level of 69- 72 US-Cents CIF and Indian suppliers have sold out high carbon ferro-chrome up to shipments in September.

Since China has returned to produce ferro-chrome by themselves, market price of chrome ore is now moving. China is the country, where produced 6.94 million tons of stainless steel in 2008 and imported 6.85 million in total of chrome ores in 2008. Reflecting a confusion of the market in the first half of 2009, the particular circumstances, which China is anticipated to import ferro-chrome on a scale of 1,000,000 – 1,200,000 tons per annum in the calendar year (January – December) of 2009, have arisen but China is now moving to purchase chrome ore. While the production of ferro-chrome in Huanan district of China has been based on hydroelectric power generation, ferro-chrome producers in this district are starting to revive their production of ferro-chrome. The cost to produce ferro-chrome in China is estimated to be 70 – 80 US-Cents per lb. of Cr and a profitability in production of Chinese ferro-chrome to get back has come to be within hail.