Supply chain woes force shifts in bulk alloy purchasing

Tight supply and steep price hikes for bulk ferro-alloys and other stainless steel inputs are encouraging a shift in buying behaviours, with market participants negotiating term contracts earlier, leaning away from back-to-back spot trades and flipping many index-linked discounts to premiums.

Several large European mills have already secured material for the first quarter of 2022, increasingly aiming to stockpile material rather than rely on hand-to-mouth top-ups from the spot market that have become subject to extreme delays and risks of cancellation.

"We are starting to run out of material," a procurement manager for a stainless steel producer said. "People are worried about how long this will go on and are now taking precautions."

A European manganese buyer said that they had roughly 900t of "non-performance" from China this year, with traders "trying to cancel and get out of contracts" on a weekly basis. "There is no certainty so you can't do back-to-back sales," another trader said, adding that they would only commit to deals if material had already been shipped.

With supply chain woes likely to persist in the near-term — amid production cuts in China and Europe, a shipping industry under enormous strain and unusually high freight rates — discounts to indexes have flipped to premiums amid a widespread scramble for the most highly sought products. "Some buyers have no clue on China-dependent commodities," one manganese metal trader said, adding that most end-users just need to secure supply and are less motivated to haggle over the price.

Some end-users are taking a hybrid approach to bookings — with half of deliveries booked at a fixed price and half tied to an index. The same manganese trader recently finalised a six-month flake contract, selling at a fixed price of $7,395/t ddp for three months, while the other three are priced in index-linked terms. That figure compares with Argus' flake index of $7,150-7,250/t du Rotterdam at the end of last week.

European bulk alloy prices have risen sharply in recent weeks, with all now sitting at record or multi-year highs as supply side woes drag on. Low-carbon ferro-chrome was assessed late last week at $3.05-3.15/lb ddp for min 65pc Cr grade material, with some producers offering as high as $3.30/lb — levels not seen since November 2008 amid the global financial crash.

Argus' regional ferro-silicon assessment ended last week at €4,000-4,100/t ddp northwest Europe — up from around €2,015/t ddp at the beginning of September — and sellers continue to test the market with higher offers in light of tight supply, firm underlying demand and recent price surges in the silicon metal market.

By Yusuf Khan