EU charge chrome benchmark spurring structural shifts

This week's rollover of Europe's quarterly charge chrome benchmark for July-September is highlighting structural problems in the region's ferro-chrome market, with consumers increasingly regarding the benchmark as detached from the wider market and switching to buying more high-carbon alloy rather than charge chrome.

The European charge chrome benchmark price — which is determined by a European stainless steel producer and the Glencore-Merafe joint-venture in South Africa — was unveiled this week at $1.14/lb for the third quarter, a rollover from the second quarter number which had already attracted controversy on the basis that the wider market was below that level.

Demand from European stainless steel mills is currently at historically low levels, while European crude steel production fell by 26.8pc year on year to 10.5mn t in May, according to the World Steel Association. One stainless steel producer said they are operating at 50-60pc capacity and were confused about the benchmark price.

"Right now the gap between the benchmark price and the actual market is making high-carbon alloy look more attractive. It's technically possible to switch. For me it's starting to be really problematic," they said.

High carbon ferro-chrome typically comes into Europe from Russia, Kazakhstan, India, Brazil and Finland, and contains 60-70pc chrome content, compared to charge chrome at 52pc. Prices for high-carbon alloy are lower than the benchmark, with Argus assessing high-carbon ferro-chrome prices in Europe at $0.88-1/lb ddp on 7 July. Overall, the high-carbon ferro-chrome assessment averaged 87c/lb ddp in the second quarter, up slightly from 81c/lb in the first quarter.

FeCr trade flows shifting

In recent weeks, large high-carbon alloy producers have noted steelmakers approaching them for more material, turning away from their traditional use of charge chrome.

Many buyers and traders of ferro-chrome are opting to use high-carbon alloy prices to calculate their formula-based long-term contracts, spurning the charge chrome benchmark, and international competitors are challenging South Africa for market share.

Exports of ferro-chrome containing higher than 4pc carbon to Europe from Kazakhstan — the third-largest exporter to Europe — totalled 16,432t in May, their highest monthly level since August 2018 despite the Covid-19 pandemic, according to trade data.

South African exports to the EU have been trending downwards. In January-May, South Africa exported 143,809t of ferro-chrome containing 4pc carbon or higher, down from 243,571t in 2019. Exports had slumped particularly sharply to 10,512t due to lockdown measures, but even excluding April, monthly average exports to Europe from South Africa over the period totalled just 33,324t, down from 48,714t a year earlier.

Supply concentration limits buyer options

The benchmark price is not the only challenge facing European stainless steel producers when buying charge chrome from South Africa.

Concentration of supply in the hands of a few producers has limited options for price negotiation, with Glencore-Merafe having become the only viable source for some steelmakers because of disruptions affecting other producers.

Afarak group, which owns the Mogale ferro-chrome smelter and Vlaakport and Stellite mines, was put into voluntary business rescue in May. It cited the lockdown in South Africa, but problems had persisted before due to high power costs and oversupply in the chrome market. Afarak produced 49,237t of ferro-alloys in January-March, down from 108,778t a year earlier.

Samancor — the other of the three major charge chrome producers — is part of a joint-venture with Sinosteel, the large Chinese stainless steel company. Some buyers in Europe are uncomfortable with buying from a direct competitor, particularly one accused of dumping large volumes of steel into the European market. Most of their charge chrome is directed towards steel operations in China and elsewhere.

By Thomas Kavanagh