CHROMIUM 2018: Foundry chromite market ‘on the cusp’ as bearish sentiment persists

By Davide Ghilotti
Published: Thursday, 20 December 2018

The widespread perception among participants is that the foundry chromite market may be about to turn after a year characterized by supply tightness and high prices.

Participants active in the foundry grade chromite sector have suggested that the market may be experiencing a change in direction, with supply reacting to meet demand after a year of shortages and rising prices.

In conversation with Fastmarkets at the ICDA Chromium 2018 conference in Baotou, China, on November 6-8, market participants in the foundry sand business spoke of a near-record year for prices and demand.

After extremely firm conditions in 2017 when foundry sand prices held steady above $350 per tonne, the start of 2018 ignited what turned out to be a surge in market prices.

In the first half of the year, foundry prices rose by more than $100 per tonne, with the price of wet bulk 46% foundry grade chromite hitting a high of $545-565 per tonne fob South Africa late in June, up from $400-450 per tonne in January - a rise of 30.6%.

What the industry experienced then was a combination of strong demand across the board from both core and peripheral markets that was underpinned by strong fundamentals in consuming markets such as the industrial, refractories and automotive sectors.

The high demand added to an underlying situation of shortage of material. During the latest market downturn in 2015 and early 2016, several producers that were operating underground mines in South Africa closed, dogged by depressed prices and oversupply.

This took a substantial chunk of foundry sand supply out of the market and created a gap that has never really been filled.

The supply/demand balance was steady for some time since but, with the widespread demand increase in 2018, the earlier shortage became apparent, triggering the price rise.

While a bullish tendency was clearly evident in the wet bulk market, the price of dried and bagged foundry sand was even more volatile during this period. This was due to the different nature of the two markets - while wet bulk material trades to a limited number of customers, buying large tonnages of several thousand tonnes per parcel, dried and bagged material is bought by hundreds of end-users in small parcel sizes of 100-200 tonnes.

In an appreciating market, the dried and bagged price is thus more likely to be reactive and to experience quicker upticks compared with the wet bulk price, which may lag behind.

In consequence, Fastmarkets witnessed what became a gradual and progressive separation of the dried and bagged market from the wet bulk market.

The previously set premiums that dried and bagged would command over wet bulk no longer applied, with premiums growing for the dry material during the first and second quarters of 2018.

After following this pattern since late 2017, in July of this year Fastmarkets launched a standalone dried and bagged foundry price, to capture what had become a free-standing market that had started to move on a separate track.

The dried and bagged foundry grade chromite price complements the pre-existing wet bulk price.

Market on the cusp

Into the fourth quarter of 2018, early signals emerged pointing to a softening of the market after the bullish trend in the first part of the year.

As of mid-November, bearish sentiment is spreading, with several sources saying that this may be only the beginning.

On the demand side, several factors were affecting orders. Market participants in conversation with Fastmarkets pointed to the US-China trade war; the economic slowdown in several western countries at the end of the year; industrial activity easing after a strong start to the year; and a slowdown in the automotive market. All of these factors were reckoned to be contributing to damped demand.

Meanwhile, supply has reacted to the shortage of material and several market participants, attracted by the high pricing scenario, sought to enter the sector.

Almost all participants involved in the market who were canvassed by Fastmarkets agreed that additional volumes of foundry sand were now reaching the market; some even went as far as say that this was just the start and that "a flood of material" could come at some point in 2019.

The shortage is receding

"The market is reaching a cusp and all the indicators point to a change in direction in the coming months. Supply has reacted; the shortage we saw earlier is easing. This could be the beginning of a new phase," one participant said.

The additional volumes available were reported, for the most part, to be off-grade material, characterized either by lower chrome or by higher silica content or that were produced by means other than the standard underground mine route. (Note: Fastmarkets’ specifications for chromite sand are 46% Cr2O3 content, max 1% silica content.)

Fastmarkets has heard of some run-of-mine material being processed or ore sourced from open-cast mines being processed into foundry grade material.

Additionally, there was the understanding that some volumes of foundry sand produced in China, which is produced by screening metallurgical grade chrome, may be available for export into western markets such as Europe. That would be a new development China-produced material is typically consumed domestically in its entirety.

These volumes command lower prices than standard foundry-grade material. Still, while availability improves, these volumes have been indirectly affecting standard foundry prices, as indicated by the bearishness in the market over the past month.

Fastmarkets assessed the price of foundry-grade 46% chromite, wet bulk, at $450-490 per tonne fob South Africa on December 11, against $540-560 per tonne in mid-September.

The price of foundry-grade 46% chromite, dried and bagged, was assessed at $530-570 per tonne fob South Africa on November 11, widening downward from $570-600 per tonne in the previous week.