Supply, demand dynamics trigger evolution in chromite pricing spreads

By Davide Ghilotti
Published: Wednesday, 01 August 2018

The evolution of spreads in non-met chromite markets has caused a breakaway from the historic patterns in price differentials between grades of chemical, metallurgical and foundry material. Industrial Minerals has launched a new price assessment for dried and bagged foundry grade chromite sand to provide additional insight into market movements.

Prices in the non-metallurgical chromite market were formerly governed by a generally accepted system of premiums that maintained a close correlation between the various grades in the sector.

But some markets have gradually moved away to take separate and more independent routes.

Spreads between the main chromite grades have been changing significantly in recent times. This evolution has affected metallurgical chrome ore material, chemical grade and foundry grade chromite alike.

Historically, a generally accepted set of premiums used to distinguish the UG2 met chrome ore price from the chemical grade and the foundry grade price.

Until 2016, these three markets were strongly connected in price terms - chemical grade was priced around $20-30 higher than UG2 and foundry grade some $20-40 higher than the chemical grade price.

Dried and bagged foundry chromite historically commanded a premium of $50 to the wet bulk foundry grade price.

But much has changed over the past two years. The connection between UG2 and foundry has fractured since 2015-16; similarly, the link between UG2 and chemical grade has been waning. At present, UG2 and lower-purity 43-44% chemical maintain a close relationship, while 46% has taken an altogether separate direction.

Ultimately, the premium system between wet bulk foundry and dried and bagged foundry has also become looser. Owing to widespread demand for dried and bagged material, its prices has risen quickly this year while wet bulk has lagged behind and is only now catching up.

Chemical grade and UG2
The spread between low and high ends of the price range for chemical chromite 46% has also been widening as of early March.

This split, which remains in place, reflects cheaper quotes for the markets of China and Southeast Asia but significantly higher prices for material traded in western destinations including Europe and the Americas.

Meanwhile, a standoff between South African suppliers and Chinese buyers of chemical chromite has been maintaining prices to China at the low end.

"There is no discernible end in sight for the stalemate," one trader said.

Conversely, sellers have been able to secure higher prices by selling to other destinations, including the United States, Western Europe, Turkey and Russia.

A perpetuation of this pattern over the past four months has resulted in most of the 46% chemical material trading elsewhere other than China and South-East Asia, where sellers can achieve better prices.

Additionally, the trading of chemical-grade 46% material in China faces strong competition from UG2 chemical material, which has lower purity levels of 43-44%. This material is favored in some markets in Asia over standard 46% chromite for chemicals applications.

This supported trading of significant volumes of 43-44% chromite into South-East Asia during the first half of the year.

Higher availability of this grade, compared with tight supply of 46%, is ensuring a growing price differential between the two grades.

While Industrial Minerals does not formally assess the price of 43-44% chemical grade chromite, it understands that market prices have moved from $230 per tonne cif China in the first part of the year to $250 per tonne up to June before edged down to around $220-240 per tonne as of mid-July.

Industrial Minerals’ price assessment for chemical-grade chromite, 46% Cr2O3, wet bulk, remained at $285-340 per tonne fob South Africa on July 31, unchanged week on week since March 6.

The spread between the low and high ends of the pricing range is more than $50 per tonne but historically it has been as low as $10 per tonne.

Additionally, the spread between the 46% and 43-44% price stands at an average of some $70 at the moment. For comparison, this used to be closer to $40 in March 2017. Prior to that, the premium for 46% over the lower-purity grade used to be around $20.

This shows how, especially during 2018, there was an additional rupture in the chemical grade chromite sector, with 46% material prices climbing and the market epicenter moving westwards, while 43-44% prices remained more competitive and established a stronghold in eastern destinations.

According to multiple sources, this reflects limited production of 46% grade - output has dropped over the past year - while production of 43-44% has been more abundant.

Foundry: wet bulk and dried and bagged
Premiums and spreads in the foundry market have also evolved.

Industrial Minerals has been pricing the wet bulk foundry sand market - seen as the industry benchmark for participants in the foundry sand sector - for many years.

For dried and bagged sand, the market has historically applied a premium of around $50 on average - covering the drying and bagging cost plus a variable margin - to establish the dried/bagged price, based on an original wet bulk price.

Changes in supply and demand patterns, however, have forced the two market prices apart; this has become evident since the second half of last year.

Owing to a rebound in demand for dried and bagged material, supply does not cover the needs of the entire market. The rise in demand has been supported by improvements in foundry and refractory end markets as well as changes in trading habits.

China formerly extracted its own foundry grade from metallurgical grade material, for example, so it was not particularly active in sourcing directly from South Africa.

Because local processors have been using material that is unsuitable for foundry grade extraction, Chinese users were forced to import foundry sand material from South Africa, bolstering further demand.

The apparent shortage has led to an appreciation of dried and bagged prices while wet bulk prices have lagged behind.

Margins for dried and bagged have in some cases increased by half against what they used to be under the traditional set premium system.

Industrial Minerals assessed the price of wet bulk foundry grade chromite 46% at $545-565 per tonne fob South Africa on July 31, up from $400-450 per tonne in January

At the same time, dried and bagged had reached $550 per tonne fob South Africa and above by March.

"Dried and bagged has been so much more bullish than wet bulk so suppliers focused on that. It appreciated more quickly, due to smaller parcel sizes and large number of end users. And the link with the wet bulk market gave in," a seller said.

After closely following the progress of the two markets, Industrial Minerals has launched a separate assessment price for the dried and bagged foundry grade chromite sand to capture the movement of this specific market.

The new price can be found in the price book under the following name: Chromite, foundry, 46% Cr2O3, dried and bagged, FOB South Africa $/tonne.

Industrial Minerals assessed this price on Tuesday July 31 at $600-625 per tonne fob South Africa.

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