Chinese alloy weighs on EU FeSi, poses risk to FeCr

Increased availability of Chinese-origin ferro-silicon in Europe has tipped the market into a downtrend, with prices nearing pre-invasion levels, while European stainless steel mills eye Chinese low-carbon ferro-chrome, posing a significant downside risk for European indexes.

European prices for 75pc ferro-silicon sank to €2,700-3,100/t ddp today — down from an April average of €4,052/t and a record-high of €4,000-4,250/t on 10 March — as the arrival of Chinese ferro-silicon in European warehouses weighed on the market, and the market corrected lower from the supply shock of Russia's invasion of Ukraine.

Inflated prices for standard 75pc European alloy, coupled with inconsistent spot supply from Spain, Norway and Slovakia, has prompted certain mills to opt for Chinese-origin material, either with a 75pc or 72pc Si content, in their manufacturing processes.

Export prices in China were assessed at $1,950-2,000/t fob today, or around €1,850/t, a spread of around €1,000/t to Europeean levels. By way of comparison, the spread was approximately €200/t in January-October 2021, at which point it began to widen.

This comes at a time when western nations are increasingly trying to reduce their reliance on Chinese metals and minerals, but supply constraints ensuing from the war in Ukraine have presented exceptional circumstances.

The main limiting factor for any commodity sourced from China is still logistics and shipping times. "I don't see the Chinese being able to take care of the market right now, because the logistics are awful," a Spanish trader said.

Prices are still dropping but "to what extent it can continue I have no clue. At this point I don't see it rebounding," one market participant said. This is partly because the spread between Chinese and European prices are some five times wider than historical norms, and consumers are likely to leverage that fact to negotiate lower prices with traders, market participants said.

But further losses in the near term could result in a supply squeeze down the line. One European ferro-silicon producer told Argus that if spot prices held consistently below €3,000/t — approximate production costs — it would have to curtail its production. "If we do not climb above €3,000/t, we will see European production coming off line," a trader said.

The possibility of a supply squeeze is of course pitched against a long-anticipated dearth of consumer demand for steel goods, and therefore weaker demand for alloy feedstocks. One European stainless steelmaker told Argus that it expects to call off minimum supplies from contracts in the third quarter, with no need to dip into the spot market for additional amounts. Although the onset of third-quarter enquiries expected in the next few weeks could support prices, one trader said.

But where prices will settle remains to be seen. They surged late last year as power shortages tightened the belt on Chinese industry, but then proceeded to weaken through the new year on sluggish demand, with the market bottoming out at €2,750-2,950/t ddp on 8 February. But with global energy markets in turmoil, and macro-economic factors weighing as much downstream as upstream, visibility on price direction remains amiss among market participants.

Mills consider switch to Chinese LC FeCr

While ferro-silicon and manganese alloys turned bearish in the past month, ferro-chrome has remained strong amid concentrated market conditions, but persistently bullish upstream sentiment has turned some eyes to China.

Offers for min 65pc Chinese low carbon ferro-chrome were heard this week around $4.30-4.50/lb for prompt delivery in Europe, as traders and suppliers look to capitalise on inflated European prices. But Argus was unable to confirm any fresh spot deals at the time of publication, as some traders questioned how viable Chinese supplies were for European buyers.

Nevertheless, at such a significant discount to European supplier offerings, Chinese material of course poses a huge downside risk, if only on sentiment and the willingness of end-users to continue buying material above $6/lb.

One stainless steel producer told Argus that if they could buy Chinese alloy at $4.05/lb as opposed to $6.50/lb, as quoted by European producers, "which do you think I'm going to do?"

Elsewhere, another European stainless steel company is in negotiations with a Chinese supplier for low carbon supplies and is awaiting a trial of material to verify quality and specification, it said.

But signing a long-term contract with a Chinese supplier is a "big risk", and one that "nobody would be able to take in the long run", partially because European prices could move lower at any time, and a contract could then be negotiated relative to a European or Chinese benchmark.

If supplies of Chinese alloy in European warehouses increase enough, whether received under contracts or through spot trade, European producers could be faced with buyer absenteeism unless their offers normalise.

But as above, the viability of a wider switchover to Chinese production is hampered by freight lead times — although this aspect is potentially more manageable on a long-term contract basis.

By Samuel Wood