Global chromite market seeks new balance

By Davide Ghilotti
Published: Thursday, 12 August 2021

The non-metallurgical chromite market has been dogged so far in 2021 by the long-tail effects of oversupply built up from previous years and insufficient demand rallies, but recent developments may speed up the sector’s recovery, as Davide Ghilotti reports.

Suppliers of chemical and foundry grade chromite materials have been in an uncomfortable position in 2021 after chrome ore and ferro-chrome counterparts have raised their prices twice in the past six months. Chromite suppliers are largely unable to follow in the same direction with their own quotes.

Prices for metallurgical grade UG2 chrome ore rose by almost 40% during the first quarter of 2021, driven by Chinese demand and a gap in local supply. Chromite prices showed much smaller movements.

Fastmarkets’ assessment of the foundry wet bulk price rose by 13% between January and March, while the dried-and-bagged price assessment increased by 7% in the same period. Both prices fell from April to May following their short-lived increase. Sellers were largely unsatisfied with this performance, since the rally in chrome ore prices had been of a much larger magnitude.

Chrome ore prices rose from June and continue to be firm. Chromite prices also increased slightly, but remain unable to follow the sharper upward movement of the metallurgical market.

Sources attribute this to both supply and demand issues. "Demand continues to be the main driver of price performance for chemical and foundry chromite," one South African producer said. "Inconsistent buying patterns are making it difficult to raise offers in a meaningful way."

Lower supply

Supply has already reduced from 2020. From the first Covid-19-related lockdown in South Africa in April 2020 onward, several mines – particularly small- and medium-sized operations – closed and did not reopen. Likewise, some independent third-party processing facilities that used to process the material from the smaller mines closed.

"While it’s true that some supply has fallen by the wayside, that lower total volume has still been too much, given the current state of demand in some destinations," one trader said. "That has affected the international pricing pattern."

Recent developments may have ripple effects on the supply structure of the global market, several sources said. In early July, South African miner Chrometco filed for a restructuring of its business and put its chrome mining and washing operations – which were run by Sail Group – on care and maintenance due to financial pressure.

Sail and Chrometco were supplying both the metallurgical market and the non-met foundry market. Sources estimated that Sail’s monthly shipments to China averaged 90,000-100,000 tonnes.

Market participants suggest that the effect on the foundry sand market may be more pronounced than the effect on the large chrome market. A substantial amount of foundry sand consumed in China originated, directly or indirectly, from the coarse chrome ore that Sail shipped. The company operated its own screening plant in China, where it processed ore into foundry sand to supply the local market. It also supplied ore to other third-party wash plants, again for screening foundry material sold domestically.

"Once you consider that Sail was behind not just the volumes their own wash plant had to sell, but was also serving other screen plants in the country, you see that their weight on the Chinese foundry market was significant," a second trader said. "If those units don’t come back, you’ll have a large consumer, China, where a gap would open up quite quickly."

Chinese consumers tend to buy much larger volumes than other destinations – such as Europe, the rest of Asia or North America – so buying patterns in China have acted as a leveller to the market in the past, scooping up extra tonnages and balancing supply elsewhere.

While there may at times be differences in exact product specifications, because Chinese consumers can normally handle less strict specifications for their usage compared with other destinations, the country’s volume of demand gave it a weight in the global chromite market.

Foundry consumers in the country have been telling Fastmarkets for several months that their demand for South African sand remained low because they had sufficient and cheaper domestic supply from screened material, plus enough port-side inventories to cover existing and impending short-term needs. Reported sales of South African foundry material to China over the past six months have been few and far between.

This might change after Chrometco/Sail put its chrome mining and washing operations on care and maintenance, if those operations were to remain shut in the future. Domestic wash plants would find it difficult to source alternative volumes, requiring other suppliers from outside. Foundry consumers may also find it harder to cover their needs solely with locally screened material, and may have to resort to more expensive source units directly from South Africa.

This may set several supply wheels in motion. Higher demand from China may tighten supply in other areas. "We kept saying that something had to give on the supply front, and a hole being created suddenly, for the market to reset into a new workable balance," a second seller said. "Maybe this is it."

"Any volumes that move toward China from [South Africa] wouldn’t be heading anywhere else, and would take away from what will be available in Europe [and] in the US," a third trader said. "If the lion’s share of foundry in the Chinese market is not here any more, that will have some kind of effect."