Chromite: A silent market

By Sybil Pan
Published: Friday, 07 August 2020

Evolving market dynamics in foundry-grade chromite have reshaped trading patterns between South Africa and China, resulting in an almost silent market.

Bearish market conditions since last year in consuming markets and supply uncertainty in South Africa have affected trading patterns and foundry-grade chromite prices over the past six months.

The persistent weak performance of the chrome market in 2019 – including both metallurgical and non-metallurgical grades – caused prices for foundry sand to halve in the space of 12 months. However, the Covid-19 outbreak broke the downward trend in the foundry-grade chromite market at the end of April, following the announcement of another 14-day lockdown in South Africa – following on from the initial 21-day lockdown announced on March 26. 

Price rises – albeit from a low level and at a gradual rate – and supply uncertainty followed the announcement, resulting in shifting trading patterns and liquidity changes in the chromite foundry markets. By the middle of April, prices of foundry sand had dropped by $10-20 per tonne from the start of the year. And even though prices then recovered slightly because of supply issues in South Africa, this upturn was capped by a lack of demand in most markets. 

Fastmarkets' price assessment for chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa was $210-230 per tonne on June 30, having been flat for three consecutive price assessment periods after rising from $180-210 per tonne on April 14. 

The price assessment for chromite, foundry, 46% Cr2O3 min, dried and bagged, fob South Africa remained unchanged for the second trading period on June 30 at $285-395 per tonne, after ticking up from $250-380 per tonne on April 14. 

Shifting trading pattern
One shift in trading patterns over recent months has been the change to a reduction in shipments of wet bulk material straight to China, in sharp contrast with the trend for increasing shipments direct to China at the end of 2019 and at the start of 2020.

Foundry factories in China tend to source foundry sand domestically from washing and screening factories, which usually buy the metallurgical material at 44% grades with the AFS value at 70-90. Almost 70% of the foundry grade wet bulk material used in China is sourced within the country, according to market sources. 

Under normal circumstances, China is a medium-sized importer of foundry sand from South Africa, with emerging trade flows to China at the end of 2019. This was mainly caused by bearish market conditions eating up the marginal profits of the washing factories and leading to some closures or suspensions.

However, price increases for wet bulk foundry sand from the end of April might lead to a decline in trade flowing direct from South Africa to China. "For screening factories to maintain profit margins, the minimum spread between the price of the material from South Africa and the domestically processed foundry sand should be at least 600 yuan ($83) per tonne. Otherwise, it becomes more economical to source the material directly from South Africa," a trader in China told Fastmarkets.   

But despite the advantage of the very high yield rate of at least 85% for the South African foundry sand, the increasing prices, supported by uncertainty over the pandemic, might put off Chinese buyers, who would prefer some off-spec material for further screening given the bearish market. 

"Suppose the price of the South Africa wet bulk foundry sand was at $210 fob South Africa per tonne for the Chinese market and the freight rates was $20 per tonne, giving us a cif China price roughly at $230 per tonne. By comparing the domestic foundry sand price at 2,100 yuan ($297) per tonne, we may find the spread of $67 per tonne would not be enough [for traders] to buy the material because of the weak downstream foundry sector," a second trader in China said. 

Aside from the question of price spread, there is buyer sentiment to take into consideration. 

The lockdown extension in South Africa in the middle of April resulted in panic among buyers of foundry sand in China. But after an initial flurry of buying activity, they factored in the bearish market, so buying activity began to fall after that, according to the first trader.

"Normally, foundry factories would source material on a 'hand-to-mouth’ basis. But with the lockdown and halted operations in South Africa, and the delayed restart to operations in China in February, many downstream users stockpiled material in April [to last] for at least two or three months, leading to a sharp decline in demand for the foundry sand in May and June," he said.

According to a third trader of foundry sand, downstream demand in May and June fell by a half. But by July, most clients might be back to their previous buying pattern, leaving the market expecting a slow flow of foundry sand material, he added.

Continuing silence
Market participants in China believe the foundry-grade materials market has reached a peak – at least in the short term. "The foundry sand market in China could be said to be balanced, with concern over the supply of raw materials being offset by lukewarm downstream demand," a fourth trader of foundry grade chromite told Fastmarkets. 

"I’d describe the current market conditions as being in a 'plateau period’, with prices staying firm and lacking incentive for either upward or downward movement – and that might sustain for the following two months," a fifth trader in China said. 

"By the end of July, there would be about 50,000-60,000 tonnes of material arriving [from orders delayed due to the pandemic]. Given that the maximum consumption in the domestic market is about 20,000 tonnes, the supply would be enough to support production for at least three months."

"There is too much uncertainty in the South African situation. We think it is wise to stay on the sidelines, with a conservative view on near-term developments," a sixth trader concluded.