Market participants active in non-metallurgical chromite are
looking ahead to a year of uncertainty in 2021, with the
recovery in demand remaining elusive and supply security
equally far from clear.
The chromite sector was dogged by a second year of
unfavorable market drivers in 2020 following a first reversal
of the cycle during 2019 on oversupply and falling consumption.
While the past year saw an exacerbation of issues for both
South African producers and consumers, the new year will be
marked by push and pull factors that continue to affect the
supply/demand balance and prices.
"The curtailing on the supply side has been stronger than
the reduction in demand," a South African chromite producer
told Fastmarkets in June last year, referring to a series of
issues that had taken a sizeable chunk of output offline
throughout the country.
Output has been particularly inconsistent during 2020,
especially since the month-and-a-half national lockdown imposed
by the government at the height of the Covid-19 pandemic in
March and April, with only a reduced output capacity from May
In reality, a number of small- and medium-sized mining and
processing operations decided not return to production after
the first wave of closures because of the continuing
restrictions on operational rates, logistics bottlenecks and
low market prices.
At the same time, large and more established companies faced
their own set of closures: Samancor’s operations
were out of action for at least two months; the Glencore-Merafe
Kroondal chrome mine was also down for longer than the initial
national closure period, with only a slow and gradual restart;
and the Lanxess chrome mine, which was sold to local chrome
processor Clover Alloys, has yet to resume operations pending
the conclusion to the transfer of ownership.
Each producer incurred a meaningful reduction in their
yearly output. And for those that remain closed, when they will
return to production remains unclear.
Adding to the uncertainty on the supply front is the
potential introduction of an export tax on chrome products
leaving South Africa – a proposal the government put
forward in an effort to encourage added-value creation within
the country for its ferro-chrome supply chain.
Because, under current conditions, customs does not
differentiate between met and non-met chrome products, the
advent of a levy would also affect foundry and chemical grade
material. Market participants estimate the rate could be as
high as 30-40% of the sales price: and there is no clarity from
the authorities as to how the tax would be implemented, or
along what timeline.
The effects of the pandemic have not gone away, however, and
the mining sector is particularly exposed. And with workers
routinely traveling long distances between their towns and the
working mine sites, any health-related emergency can have
drastic consequences for the workforce at operations.
Demand also took a severe hit in 2020, thereby extending the
period of oversupply that characterized the 2019 price
The first wave of national lockdowns in developed economies
in the first half of 2020 brought industrial activity to a
halt. And in terms of chromite, this crucially affected the
automotive and steelmaking sectors – the two largest
industries to use foundry material.
As the economic slowdown brought countries into
near-recession territory, this took a heavy toll on both the
production and the consumption rates of commodities, products
and services. In some key destination markets, such as Europe,
that weakness was then added to the seasonal slowdown during
the summer months, further stifling demand for raw
Until the summer, suppliers were hopeful that trading
volumes would pick up in the last quarter of the year,
especially in October and November – two of the
busiest months for commodity trading. At the time of writing in
mid-December, however, we saw that this was not the case, with
spot demand remaining weak until the year’s end.
This is indicative of the weariness with which consumers are
still approaching their purchasing strategies.
Crucially, as has been the case for other materials used in
foundry and refractory applications, chromite sand supply in
2020 has been sufficient to cover demand only because
refractory applications have been particularly badly hit. While
both supply and demand have reduced, market participants
estimate 2020 consumption fell below the reduced output for the
But against a situation of rebounding consumption rates,
supply channels may see tightness building again. "We saw this
happening in the past, with supply gradually being lost along
the way and no one taking any notice. Then a large operation
goes 'boom’, and everything changes," one market
This was the case in 2015 when, at the bottom of the market,
the Dilokong chrome mine closed, taking its large output
offline for good. That marked a before-and-after in the supply
cycle, which turned in subsequent months into a three-year
bullish price run.
Some in the market have been drawing parallels with that
situation, but also point out crucial differences in the state
of supply. "Because of the pandemic, everyone tried to run down
their inventories [last] year. [So] the stock level in the
system now is lower than it was during the last bearish cycle
in 2015," a supplier said. "That means the market can turn
faster than it did before."
All in, while the chromite sector finds itself in uncertain
waters as it heads into 2021, there are factors that could
steer a change in direction either way, as demand takes time to
recover and supply looks uncertain. As a third market
participant put it: "This won’t continue for long.
Something’s got to give."