Eastern Express. FeCr market in China vs Rest of the World?
Eastern Express, FeCr market in China vs Rest of the World?
During 2021 global FeCr prices rose to the record levels (last seen in 2008), led in H1 2021 by China and followed quickly by the market in the RoW. By the end of H2 a risk of market correction became visible. In China FeCr prices, indeed corrected:
After Ferrochrome Bidding Prices in China reached their peak in August and November of 2021, they gradually decreased, with the February 2022 prices being:
- Tsingshan rolled over January price at 8195 RMB/t (a decrease of 1400 vs December price), while in USD denomination this equals to 1.04 USD/lb
- Baosteel rolled over January price at 8195 RMB/t (a decrease of 1405 vs December price), while in USD denomination this equals to 1.04 USD/lb
- TISCO rolled over January price at 7995 RMB/t (a decrease of 1405 vs December price), while in USD denomination this equals to 1.01 USD/lb
*FX rate from 11/02/2022 at 6.3540
While the prices dropped almost 16% compared to December level, from the graph below one can see that they remain at relatively high level compared to the last 5 years.
If we compare the annual average price for 2022 (January and February announcements), with average prices from 2017-2021, it shows that current price level is above all years except 2021, when rapid price increased pushed them to new heights. Even when using average price over the last 5 years, so far 2022 average price is 11% higher.
Despite steel production decrease in China over the last few months, to improve air quality for the Olympic Games and to combat air pollution. China has slightly moved the timeline for peak carbon emission, from 2025 to 2030 (probable for both carbon and stainless industries). That might keep momentum from the second half of 2021, such as record stainless production and consumption to continue in 2022.
There is also a strong possibility of easing monetary policy in China to further stimulate the economy, which is a complete opposite of the policies implemented by FED, ECB and other federal banks ex-China.
There are some additional factors that could further impact FeCr market:
- A possibility of South Africa to introduce chrome ore export tax, even though after a year of discussions, no decision has been made
- Encouragement by Chinese government, to consolidate stainless-steel industry via Mergers and Acquisitions. This could potentially decrease number of players who drive the market price
- Continues increase in electricity costs globally, driving costs of FeCr and stainless-steel production up
- Shortening transition period for European Carbon Border Adjustment Mechanism from 2026 to 2025. While there is no clear indication what directly affect this twill have on FeCr industry, nevertheless it mostly likely will have one
- Surging inflation, combined with oil’s surge to the highest level since 2014, creates the strongest price pressure in decades. FED is expected to start increasing interest rates aggressively combined with potential to decrease balance sheet, in order to combat the inflation. This could lead to severe turbulence on the financial markets, and put significant pressure on the demand in many industries including steel and ferrochrome
- This could as well result in a large-scale debt crisis in many low-income (LIC) and middle-income countries (MIC), developed countries currency depreciation and will create substantial pressure on heavily indebted companies
As FeCr prices in Europe are 30-35% higher than in China, for the market to normalize, either FeCr prices in China should return to the level of September-December, or prices in the rest of the world to decrease substantially.
Recently steel and metals prices in China have started to advance again following stimulative actions by Chinese financial authorities. Thus, FeCr market in China is likely to continue this momentum, which makes chance of correction in FeCr prices ex-China in H1 2022 limited.
With the approaching winter in South Africa and likelihood of new electricity tariffs increases, FeCr market ex-China is likely to stabilize in the near-term close to the current level.