How to improve the functionality of FeCr market going forward or "Don't let a tail to wag the dog"
How to improve the functionality of FeCr market going forward or "Don't let a tail to wag the dog"
Ferrochrome market continues to show unprecedented divergences at its inter-regional level, combined with some of even greater disproportions within each region between grades usually close in their values and semi-fungible in their usage. For example: the same grade inter-regionally, the price of refined FeCr is two time higher in EU/USA than in China.
Across grades within one single region, HG HC (higher Cr, lower Si) is two-fold higher than LG HC (lower Cr, higher content of impurities) within EU/USA; across both regions and grades, HG HC price in EU/USA is higher than refined FeCr price in China. For many market participants these divergences seem absolutely unreasonable. They highlight market's inefficiencies and to some extend the dysfunction of current FeCr pricing mechanisms.
Recent spike in electricity prices and possibility of carbon footprint valuation for FeCr, will certainly add extra parameters to the functionality of the market (see the tables below).
The market will likely to be even less efficiently be serving its main purpose - to find realistic balance between supply and demand, considering all the complex current and anticipated parameters (quality, region, energy consumption, carbon footprint) in the supplier's costs versus consumer's value in use and to ensure long-term sustainable development from both producers and consumers perspective. From the tables, it can be seen, that addition of new parameters might add up to 1 USD per lb/Cr in additional costs, while price for FeCr in China is only 0.9 USD per lb/Cr.
Energy component evaluation, based on the average price of electricity in Europe at 0.25 USD per kWt. This valuation can change due to high price volatility of electricity and difference in electricity costs between countries
In tonnes per tonne of finished product Energy consumption kWth Energy price per lb of Cr in USD
High Grade HC FeCr 3000-3500 0.21-0.61 Low Grade HC FeCr 3000-3500 0.23-0.66 Charge Cr 3000-3500 0.27-0.79 Refined FeCr 3600-3800 0.25-0.66 In tonnes per tonne of finished product Energy consumption kWth Energy price per tonne in USD
FeSi 8500 2125 FeNi 8300 2075
CO2 component, based on average European price of 75 USD per tonne
In tonnes per tonne of finished product CO2 emissions range CO2 price per lb of Cr in USD
High Grade HC FeCr 4-5.6 0.21-0.29 Low Grade HC FeCr 5.8-7 0.33-0.40 Charge Cr 2.2-5.2 0.15-0.35 Refined FeCr 1.7-8.1 0.09-0.42 In tonnes per tonne of finished product CO2 emissions range CO2 price per tonne in USD
FeSi 3.5-14 263-1050 FeNi 2.3-7.5 173-563
*The data in the above tables, comes from publicly available sources and subject to change based on future availability. All the calculation were done considering different production methods, as well as use of different power sources. Energy prices vary by region even more than the FeCr prices
Currently ferrochrome market continues to show its volatility and does not reflect clearly supply/demand balance. While price indexes provide some idea about market direction, their difference with actual market deals becomes more and more obvious. Especially considering that majority of the price indexes for FeCr are based on spot deals, which represent just a small fraction of the market (below 10%). In this situation LTC (long-term contracts) between buyers and sellers tied to indexes become very puzzling. Additionally, current indexes are based only on the selected categories of material, because of that they don’t reflect market for different types of ferroalloys.
The market requires improvement to its functionality in order to provide both producers and consumer with guidance for further development. We have been exploring different options since in The Right Vein Publication, in order to provide market with additional liquidity and price discovery tool.
Straight-forward implementation of exchange type solution will require standardization and thus will lead to even more fragmentation due to the high level of divergence within the product sub-markets and its “semi-fungible” nature. Market requires liquidity, but due to complex nature of its products, so far, no successful system has been implemented.
We come to solution with functionalities far beyond of what classical exchange algorithm can offer, while ensuring similar level of transparency and provability for the ferroalloy market, including market functionality of clear supply/demand balance. SoftMetal platform is perfectly fit to deal with such complex variety of consumers and producers with semi-fungible interests, by adopting bid/ask system for material stored in the warehouses around the globe. SoftMetal marketplace will provide tamper-proof and verifiable matching of buy and sell orders, taking into account all of the above-mentioned parameters.
We believe the way SoftMetal structure its marketplace and trading as well as its temper-proof technology, will be able to serve ferroalloys market and improve its functionality. Which is especially important now, due to above-mentioned circumstances.
We will be happy to discuss in more details with market participants and other parties interested.
