Viewpoint: Low liquidity to weigh on 1Q FeSi prices

An illiquid spot market is widely expected to weigh on ferro-silicon prices heading into the first quarter of 2022 as most mills secured alloy under quarterly contracts.

Heading into the new year, US steel producers have most of their volumes secured under first quarter contracts. Although alloy availability is still tight, declining spot market liquidity has prompted suppliers to begin edging offers down since mid-November.

As a result, market participants expect the slow start to 2022 to weigh further on offers.

Ferro-silicon is used as a deoxidizer in steel melts and to increase hardness and tensile strength in finished steel products.

US ferro-silicon prices more than doubled prior record highs to reach $3.25-3.50/lb in October amid a combination of Russian export duties and tight offshore availability. At that time, traders scrambled to secure volumes to commit to consumers for the first quarter of 2022.

Traders moved to import as much as possible in the months of September and October to restock inventory as arrival times extended out into December.

A big cause of tightening supplies was the implementation of export duties on ferro-alloys, including ferro-silicon, by the Russian Ministry of Economic Development that were originally expected to last between 1 August and 31 December.

In recent years, Russian-origin alloy has made up more than half of the ferro-silicon imported into the US, largely intended for contract consumers, market participants said.

Available domestic inventory grew scarce as prices rose above the $3/lb threshold in September and as sellers began negotiations with mills for upcoming 2022 commitments.

Since the peak of $3.25-3.50/lb in late October and early November, prices have slowly fallen throughout the latter half of November and into December as spot market demand waned.

Supply concerns like freight delays and limited domestic inventory are expected to remain into 2022. Thus, market participants widely anticipate that prices will remain above prior records, despite downward pressure.

One of the major causes of bearish attitudes was an easing of Russian export duties. The Russian duties covering ferro-silicon were cut from the original 15pc to 5pc, effective on 15 October.

Alternative sources for ferro-silicon have also been forced to offer more competitively. US traders typically monitor offers for import for what is usually lower-cost ferro-silicon from Brazil and Malaysia.

These exporters have been forced to cope with lower export offers from China to their main costumer, Japan. The country typically sources most of its alloy from China, which has dropped its export prices for 75pc grade alloy by roughly half since late October. This is expected to weigh on US spot market offers heading into 2022.

Forward offers for delivery in recent weeks, following the conclusion of many quarterly negotiations, have been lower as well. Offers to mills for delivery within the first quarter of 2022 have been as low as $2.50/lb and were met with little interest.

Although shipping delays and costs may still be a factor in 2022, low spot liquidity amid lower restocking costs may be enough to prompt sellers to capitalize on scarce spot inquiries and wait out deliveries of replacement volumes.

By Nicholas Bell