Viewpoint: Imports to pressure HC FeCr in 1H

US high-carbon ferro-chrome prices are expected to decrease in the first half of 2019 on an oversupply of alloy across regional markets.

High-carbon ferro-chrome prices are expected to bottom out in the late-first quarter as competition among suppliers of lower grade alloy meets a mixed demand outlook, according to market participants. This will continue a declining trend that kicked off in mid-October as stainless and foundry demand fell and spreads between offshore markets, in particular China and Europe, widened in comparison to the US.

Ferro-chrome supplies from Oman, India, Kazakhstan, South Africa and Russia are expected to outstrip demand. Alloy replacement costs in the US could remain under pressure over much of the first half of 2019 in line with an expected drop in the first quarter European ferro-chrome benchmark, lower Chinese stainless tenders and abundant current supplier stocks.

Mills have shifted toward inexpensive lower-grade alloy, containing less chrome and higher carbon in some cases, in the last months of 2018, a trend that most expect to persist at least early into 2019.

Smelter capacity utilization rates, particularly at higher-cost facilities, could remain low. Pressure from excess capacity in India, Africa and eastern Europe will weigh on rates. In addition, prices for chrome ore are projected to remain weak amid rising inventories in China and consistent production.

Market participants expect the typical pick up in mill orders between January and March to fall short of 2018 levels because of lower-priced alternatives and flat-to-lower production levels. Stainless mills could lean more heavily on scrap, which participants project will decline with falling nickel prices and excess availability into 2019.

Another inexpensive alternative to spot truckloads of alloy will be annual contracts because of steeper discounts than 2018. Decreasing alloy replacement costs and close competition for annual contracts prompted suppliers to raise contract discounts in most cases above 10pc, up by an average of several percentage points from a year earlier. As a result, mills will be more incentivized to restrict spot market purchases.

Melt rates are expected to remain firm in best-case scenarios. Market participants cited uncertainty over demand owing to potential tariffs and a cooling US economy. US stainless output was up by 4pc to 2.18mn metric tonnes (t) through the first three quarters of 2018 compared to a year earlier, according to data from the American Iron and Steel Institute.

Glencore produced 1.145mn t, up by 3pc, of ferro-chrome over the first nine months of 2018 from a year earlier. Outukumpu raised its ferro-chrome output by 23pc to 361,000t. Other European producers expect to operate below 50pc capacity levels into the coming year.

US high-carbon ferro-chrome traded within a 12¢/lb band, or an average of $1.38-1.50/lb, between June and November supported by firm demand for 10-1 chrome-to-carbon alloy demand from foundries. Rising supplies of inexpensive alloy and weaker demand has forced prices down by 12pc to $1.17-1.27/lb in the latest assessment on 6 December.