Indian ferrochrome prices increased marginally after the Chinese tender prices by major Stainless-steel mills. Although the prices increased in the domestic market, buyers are resisting to buy at such higher levels. Most buyers are on a wait and watch approach as they believe that prices will not sustain at these levels.
Meanwhile, most of the producers remain low on inventory and short of chrome ore, which is providing them the leverage to quote higher prices. Also, there is not enough quantity in the domestic spot market and hence most sellers were waiting for the Vedanta ferrochrome auctions.
In the meantime, yesterday evening Vedanta ferrochrome auctions were concluded on a positive note. All lots offered received aggressive bidding suggesting of material shortage in the market. The prices in the auctions reached INR 104,900/t for a lot of 200t, while the average prices were above INR 104,000/t with only one lot being booked at INR 102,900/t. Most producers are now optimistic that prices in the domestic spot market would increase after the auction.
Current market quotations are at around INR 103,000-104,000/t Ex-Jajpur. However, only a few small lots were sold at these levels, while major buyers refrained from buying. Meanwhile, demand from exports is likely to be curbed as Chinese buyers are more interested in the spot market due to immediate deliveries.
Although the ferrochrome market looks bullish in the coming weeks, producers and traders remain worried about the following yellow-flags which could be detrimental in future:
Chinese buyers more inclined towards the domestic market
Although there has been a steep rise of RMB 700/t in the tender prices which stand at RMB 8,800/t delivered, buyers in China remained cautious of procurements. Most of the Chinese demand is expected to dry up as the steel mills are resisting to take risk of importing higher-priced ferrochrome and are more inclined to book from the domestic market. The tender prices are RMB 200/t higher than the Chinese spot market prices, which gives them a better competitive edge than India.
Increasing production in China
There has been a significant curtailment of production in Inner Mongolia – the major ferrochrome producing region of China. Due to stricter electricity norms, prices have increased significantly in China in the past month. Along with increased production cost, there has been shut down in various regions of Inner Mongolia and the Ulanqab region is also set to face production cuts in March. However, production has been increasing in other parts of China, which could be a detrimental sign for the Indian export centric market. In Feb ’21, production increased by around 6% owing to better production from the southern provinces of China. However, the production cost in Inner Mongolia is considered to be cheapest due to low-cost coal supplies, thus the increased production is expected to be of higher prices due to increased production cost.
Increasing Chrome ore prices
Prices increased in the OMC chrome ore auctions significantly last month, forbidding the producers from procuring enough chrome ore from OMC. It was expected that this might put OMC under pressure and they might reduce the prices. However, TSML stopped offering chrome ore in the market, which led to the ore crisis and most smelters are considerably low in inventory. Meanwhile, prices of South African UG2 escalated to $175/t, which minimizes the probability of a reduction in chrome ore prices from the Indian miner. This has put the Indian smelters under tremendous pressure as they will be obliged to accept the prices the Indian miner has to offer in the upcoming auctions. Therefore, the chances of shrinking profit margins can’t be ruled out.
Outlook
Ferrochrome prices in China is set to increase as the cost of production is higher in the southern provinces. This might increase the tendency of higher imports in the Chinese market. Thus, despite all the hurdles, producers in India remain optimistic about the upcoming demand from the Chinese market. However, prices in the domestic market are expected to be governed by the next OMC chrome ore auctions.
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