Covid-19 halts chromite price slide

By Jon Stibbs
Published: Friday, 07 August 2020

The Covid-19 pandemic has reversed a long-term fall in chromite prices while supply dried up, but weak demand could cap continued price rises.

The chromite market had been severely oversupplied, which had weighed heavily on prices for several months, before South Africa went into lockdown at midnight on March 26.

Fastmarkets’ price assessment for chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa stood at $180-210 per tonne on March 24, prior to the lockdown being implemented. This marked a drop of 64.9% from $545-565 per tonne on September 11, 2018, when the price first started to trend downward. But the weakness has been stemmed since March and the price even rebounded by 12.8% to be assessed at $210-230 per tonne on June 30.

Chromite, foundry, 46%

The markets for chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa and chromite, chemical, 46% Cr2O3 min, wet bulk, fob South Africa have been through similar trends throughout the Covid-19 pandemic, triggering indications of price rebounds after long-term softening. The market has been through a supply shock and is now adapting, a producer source said. 

The South African government has lifted some of the curbs on its mining sector since the strictest set of restrictions were imposed at the end of March. But social distancing regulations mean that operating underground remains particularly challenging. "There is a lot of worry around underground mining and this has helped to strengthen the market," a second producer source said. 

There has been a significant tightening of new supply to the market since the lockdown and production has been slow to recover since restrictions were eased. "There is already a big shortage of material – the situation of production is very tough, especially for underground production," a European trader said. "The future is not clear." 

Low profitability and restrictions on activity are a disincentive for producers to restart operations. Some have opted to either halt production or reappraise the viability of their assets.

Staff at the Glencore-Merafe joint venture Kroondal chrome mine have been told that financial challenges in the market mean the mine, with a capacity of 1 million tonnes per year, will not restart after lockdown measures are relaxed. Glencore is going through a process of evaluating the sustainability of all of its chrome assets in South Africa in response to weak prices and high electricity costs.

This indicates that supply will not fully recover to pre-virus levels while some producers opt out of the market. Additionally, outbreaks of Covid-19 have hit producers that have opted to resume activity. Assore, for example, had to halt operations in May at its Dwarsrivier chrome mine following cases of the virus there.

Outbreaks of the virus will be a risk for all miners for the foreseeable future while the government struggles to contain the virus over the South African winter. "Covid-19 cases will continue to crop up in mines and there will be spikes in some areas – we are still at the beginning of the curve here," a third producer source said. 

Outbreaks of the virus will continue to flare up meaning that Transnet – South Africa’s state transport operator – will need to halt its road or port facilities to allow cleaning and testing before services can be resumed. This process usually takes two days out of usual operation and can lead to missed sailing slots.

"There are real problems in moving material," a fourth producer source said. Transportation by rail to ports such as Port Elizabeth has been repeatedly hit by outbreaks by the virus, requiring activity to be halted. Durban’s Bulk Connections Terminal had to cease operations for two days from June 29, according to documents seen by Fastmarkets.

But continued tighter supply combined with uncertainty will not necessarily translate into significantly higher prices in the short to medium term. "The situation has never been as complicated as it is now – before coronavirus, prices were very low and all the European distributors had a lot of material. Now nobody needs chromite because consumers are cutting down their activity," a distributor said. 

The chromite market is highly exposed to South Africa and production will be tied to the impact of the Covid-19 virus. But the effect of the virus will also drive the demand side of the market.

"Demand is not great, especially outside China for steel, refractories and foundry, but 100% of South African underground production has been knocked out," said the first producer source, who saw the potential for sharp price rises while supply tightness bites. 

The balance of supply versus demand is likely to be characterized by low activity. Supply is likely to slowly recover but to be uncertain, while demand will also be weak as buyers respond to the chilling effect of the virus on consumption.