Too much of heaven, can bring you on the ground

Ferrochrome market in the first 2 months of 2023 showed considerable prices gain. Despite dropping from the peak prices achieved in Q2 2022, current price level still remains above levels of 2019-2021. Some of the chrome related products showed growth since the start of the 2023 driven by supply disruptions, stronger demand from stainless steel industry and improved market expectations:

  • Turkish lumpy chrome ore, up by 16%
  • European Quarterly Benchmark, up by 15.4%
  • HC FeCr Europe, up by 15%
  • UG2 South Africa chrome ore, up by 12%
  • China CIF Shanghai HC FeCr, up by 10%
  • FeCr Tender Prices in China, up by 7%
  • LC FeCr Europe, up by 5%

It is interesting to compare ferrochrome market with another metal that has similar supply structure, while demand and market development is very different.

This metal is cobalt, where as well as for ferrochrome ex-China over half of supply is provided by 3 major producers:

  • For ferrochrome those are: 2 producers in South Africa and 1 in Kazakhstan
  • While for cobalt main suppliers are: 2 from DRC and 1 from Australia
  • For both commodities China is the largest producer and consumer, but relies heavily on the imports of raw materials for its production

On the other hand, demand for ferrochrome comes from traditional industries, stainless and special steels, while cobalt is used in traditional as well as perspective industries, such as battery production. Also, contrary to the ferrochrome prices, price of cobalt dropped by 18% since the beginning of the year, and by more than 60% since the peak price of Q2 2022.

In 2021, when major world countries decided to switch to green economy, battery metals such as nickel, cobalt and lithium became the most sought after commodities, driving up the demand, while supply has fallen behind, leading to undersupply and significant price increase.

As the result, many auto manufacturers as well as financial/pension funds started to invest heavily in those metals. That in turn ramped up production, while demand started to slow down and by the end of 2022, it became apparent that undersupply is turning to oversupply, putting pressure on prices and dropping them significantly. On top of that, there is a report that a significant tonnage of cobalt is being stockpiled in Congo, and eventually could hit the market, which will put even more pressure on cobalt prices in the upcoming year.

This development is completely opposite of ferrochrome market. Even though current prices for chrome related products remain high, no new projects or expansion of existing ones have been announced or even considered. With the forecast of stainless-steel production for 2023 topping 60 million tonnes (8% growth over 2022 and 3% growth over 2021), the questions is: from where will the necessary metal come?

Ramping up of the current capacity could provide necessary supply in short/medium term, but if demand from stainless steel industry continues to grow on the annual basis, ferrochrome market could see a shortage of material.

So far, unfortunately, FeCr did not draw the same level of attention from investors, unlike battery metals. With development of new projects taking years, it is apparent that ferrochrome market will continue to show imbalance in supply/demand.

At the same time, it remains to be seen how further economical and financial conditions in US and EU, driven by uncertainty of further monetary policy and measures and looming stagflation risks combined with potential stimulus packages in China, can affect supply/demand for ferrochrome and cobalt and their further market behavior.

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