China foundry chromite market sees possible demand shift on chrome ore rally

By IM Staff
Published: Thursday, 12 August 2021

China’s metallurgical chrome market rally in June-July triggered a boost for foundry chromite at the end of July. This could prompt a demand shift from domestic screened material to South African foundry chromite. Sybil Pan and Siyi Liu report.

Historically, under normal market conditions, China is only a medium-sized buyer of processed South African foundry material. This is because Chinese foundry sand buyers tend to source foundry-grade material domestically, by screening and washing metallurgical-grade product (coarse ore grades at 44% or slightly higher) through Chinese wash plants.

These operations normally extract a grade that is both usable by local foundries and more competitively priced than material sourced from South Africa.

 

Chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa

The performance of the foundry market in China is, therefore, largely linked to domestic metallurgical grade material. So a strong metallurgical grade market could add support to the quiet foundry sector in China, albeit slowly, sources said.

The foundry wet bulk market has been stable since the start of June, as has the foundry dried and bagged market, although both markets did tick up slightly in the week to Tuesday July 27. Fastmarkets’ price assessment for chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa, rose to $200-225 per tonne on July 27, up by 2.41% from $195-220 per tonne, where it had been steady for the previous one-and-a-half months.

Also on July 27, the price for chromite, foundry, 46% Cr2O3 min, dried and bagged, fob South Africa, was assessed at $285-330 per tonne, a rise of 2.5% from $275-325 per tonne, where it had been unchanged since the middle of June.

In contrast with the slow movement in foundry chromite prices, a price rally for chrome ore 42-44% has been reported in recent months. Prices for deals concluded in late June were around $200 per tonne cif Tianjin port, versus $180 per tonne in late May. The offer price was $210 per tonne cif Tianjin port on July 19, and liquidity was heard at $230 per tonne on July 28, sources reported.

Fastmarkets’ chrome ore South Africa UG2 concentrates index, basis 42%, cif China, rose throughout July. Its sharpest increase occurred in the week to July 27 when it rose by $8 per tonne to $174 per tonne, from $166 per tonne one week earlier, marking a 10.83% increase from the start of June.

Bullish metallurgical market

Energy-consumption restrictions in China’s Inner Mongolia, in effect since late December 2020, caused the high-carbon ferro-chrome market to surge throughout the first quarter of this year.

The ferro-chrome spot price soared by 45% in the first couple of months of 2021 to peak at 8,800-9,100 yuan ($1,357-1,403) per tonne on March 2.

Chromite, foundry, 46% Cr2O3 min, dried and bagged, fob South Africa

Although the ferro-chrome spot price depreciated from April to early June in response to looser restrictions in Inner Mongolia and improved supply for smelters in central and southern China, it lurched upward again after several main production regions experienced power cuts in late May. By the end of July, it had jumped to its highest level since September 2008.

Fastmarkets’ price assessment for ferro-chrome, spot, 6-8% C, basis 50% Cr, ddp China, was 11,000-11,500 yuan per tonne on July 27, up by 49% from 7,400-7,700 yuan per tonne at the start of June.

Fast-rising ferro-chrome prices have encouraged smelters to consider shifting to high-grade chrome ore, not only to improve alloy output, but also to reduce power use amid energy-consumption restrictions, market participants told Fastmarkets.

"Everyone is rushing to produce material thanks to the amazing profits," a ferro-chrome producer said. "Chrome ore with higher chrome content can help us to get more alloy output per kilowatt-hour we consume."

 

Chrome ore South Africa UG2 concentrates index basis 42%, cif China

Market participants have also suggested that chrome ore 42-44% could remain in tight supply in the foreseeable future amid robust downstream demand.

"Immediate availability of chrome ore 44% is limited given the lasting strong demand, especially from the south," a chrome ore trader said, "and we are holding the cargoes for now until a further price rise, which we believe will come soon."

Chinese buyers face a choice

Given the expected increased consumption of high-grade metallurgical chrome ore and the rally in chrome ore prices, foundry chromite market participants in China are expecting a demand shift to processed foundry sand in South Africa. This is because the material used in washing and screening is similar to that used in ferro-chrome production.

With a bullish high-grade metallurgical chrome market, material will mainly be shipped to ports such as Tianjin and Qinzhou and less often to Lianyungang, a washing hub for foundry material in China, a China-based supplier of foundry sand said. "This means that we may expect a shortage of screenable material," the supplier added.

 

Ferro-chrome, spot, 6-8% C, basis 50% Cr, ddp China

China’s energy restrictions are another factor. "Should they continue," a chrome ore producer said, "ferro-chrome producers will definitely prefer high-grade material with higher alloy output. This will result in a declining supply of screenable material in China."

In addition, with South African miner Chrometco’s mining and chrome wash operations on care and maintenance, an expected supply reduction could also lend some support to the market, participants said.

"Chrometco used to mainly supply the foundry sector. Therefore, it is possible that foundry buyers could start to look for material from the metallurgical sector once supply in the foundry sector falls short," a second chrome ore trader said.

Given the remarkable price increase for 44% grade material, the domestic foundry chromite market is bound to go up, a second supplier of foundry sand in China told Fastmarkets on July 27. The supplier reported hearing an offer price at 40 yuan per dry metric tonne unit (dmtu) compard with its previous price of 33 yuan per dmtu.

"Should the price at 40 yuan per dmtu for 44% grade material be a tradable level, we might get a price of $250 per tonne cif China," the same supplier added. "The price differential is narrowing when compared with the foundry sand processed in South Africa. And it would be possible for Chinese foundry buyers to source directly from South Africa."

Nevertheless, there are some that want to stand on the market sidelines, given that China’s chromite foundry market could still be under pressure from sluggish demand during the slow summer season and amid ample inventory.

"It’s difficult to say how the market will perform in the near term. But we have enough inventory for the second half, and there are seaborne materials to come in the following months," a foundry sand supplier in China told Fastmarkets. "Hence, chances for a shortage of material could be slim."

There are 100,000 tonnes of screenable material at Lianyungang port, indicating that supply could be adequate for at least three or four months. With seaborne materials yet to arrive, a supply shortage in the foundry sector is unlikely, a Chinese chromite trader said.