FeCr market mulls surcharges as costs mount

Mounting costs to produce and transport ferro-chrome in Europe and neighbouring countries are causing market participants to consider adding surcharges to protect suppliers' margins.

The two main possible surcharges on the table are energy and logistics, both of which have faced significant volatility this year, according to attendees at the International Chromium Development Association's conference in Istanbul this week.

European prices for natural gas and electricity have slipped in the past month thanks to higher LNG imports from the US and Norway, healthy storage levels, and seasonal weather changes. But Europe's energy market remains highly volatile and 2023 will see strong competition for energy supplies in the absence of Russian pipeline gas and insufficient LNG terminal infrastructure.

Regional transport networks have also continued to face challenges this year — including a shortage of truck drivers in some key areas and barging constraints as summer heatwaves cause river water levels to drop — and this has kept logistics costs elevated.

Turkish high-carbon ferro-chrome producer Yildirim is considering the introduction of energy and logistics surcharges for its customers, according to Robert Yildirim, chief executive of the Yildirim Group. "A better reflection of the market volatilities can be provided by [a] new surcharge system, in order to make the ferro-chrome producers survive in high-cost circumstances," he said.

"I think surcharges for electricity could be a temporary solution, because it will help producers to support necessary costs," Switzerland-based Unichrome's chief executive Dmitry Pastour told Argus.

While Yilidirim is only considering surcharges for electricity and logistics, some conference attendees also discussed the possibility of other surcharges being added to mitigate labour costs, interest rate hikes, raw material costs, and ESG and net zero commitments.

One ferro-chrome producer told Argus that it already charges its customers a surcharge for raw material, because of the high cost of purchasing chrome ore with lower trace elements.

An end user told Argus that if producers began to implement surcharges, it would have to accept them, subject to negotiations about a base price.

The challenge of implementation

Discussions extended to what would constitute the base price, given that ferro-chrome prices quoted by producers currently account for some if not all costs.

If some costs were to be passed on to the buyer through surcharges, it is implied that the base price onto which they would be added would be lower. The final price paid by a customer would not necessarily be significantly higher, but the different components forming that price would be plainly broken down.

However, the varying exposure of different regions to cost fluctuations, and the price spreads between different ferro-chrome grades and origins, present additional challenges to implementing specific surcharges.

Last year market participants discussed surcharges for logistics as shipping rates soared, but they were never formally implemented, so it remains to be seen whether this latest round of discussions advances further.

"I think the surcharges cannot serve as a long-term solution because the sustainability of the market requires compromise between… consumer and producer in order to find a way to long-term sustainable, comfortable development for both sides," Pastour said.

Nevertheless, there is certainly an appetite for measures to protect companies across the supply chain from "deindustrialisation" in Europe, especially given competition from lower-priced imports from Asia.

By Samuel Wood