Viewpoint: Less Brazilian alloy to lift US FeSi prices

US ferro-silicon prices are projected to rise by the end of the first quarter of 2020 as lower supplies of Brazilian origin alloy lift costs.

A mixture of oversupply and lower prices for Brazilian alloy contributed to a decline in US ferro-silicon prices over much of 2019, but market participants expect supplies to tighten from the country as key producers tap into reduced capacity.

Some producers curtailed production in the third quarter because of higher input costs and are operating at a reduced capacity.

For instance, Brazilian producer Ferbasa cut back production in the latter half of 2019 and saw stocks decline by 16pc in the third quarter. Even with a ramp-up in production, market sources expect the shortage to last through the first quarter because of production and freight lead times.

Traders estimate that imports from some Brazilian ferro-silicon producers will be unavailable until as late as March as the producers focus on contract business amid lower output. The shift in focus has already resulted in a reduced inventory accessible to the spot market but will tighten further with the start of the new year.

Though most ferro-silicon imports originate from Russia, Brazil has become an increasingly influential source for lower-priced alloy in the spot market. In 2019, January-October imports of ferro-silicon with 55-80pc silicon contained grew by 118pc to 15,400 metric tons (t) from the previous-year period, according to US Department of Commerce data.

Alloy from Brazil accounted for 8.5pc of total imports, the most in 20 years excluding the record year in 2016, and up from 6pc in 2018.

US ferro-silicon prices declined by 20pc from the beginning of the year to 72-76¢/lb on 26 December, largely owing to the availability of cheap alloy from Brazil and Malaysia.

Although participants expected largely flat demand heading into the first quarter of 2020, typically steel mills re-enter the market for annual and spot market shipments after drawing down inventories in the last weeks of the year.

With Brazilian producers limiting offers for prompt delivery or offering shrinking stocks of alloy at higher prices, trader stocks are expected to wane, raising the overall costs to participate in the spot market.

As a result, market participants expect traders to pass along the gains to mills, especially for prompt delivery in the first quarter.

The handful of other Brazilian suppliers with inventory may command higher selling prices for their leftover stock until production levels rise back, forcing traders to import alloy at a higher cost from Brazil or look to other countries.

Suppliers do expect more reliance on the other source of inexpensive alloy, Malaysia, but most were mixed on whether the country could supply enough volumes to fully offset losses from Brazil. Malaysia exported 19,500t of ferro-silicon to the US in 2019, up from 14,600t a year earlier.

By Nicholas Bell