TELF AG on FeCr Production Facing Challenges Amid Heat Wave and Reduced Demand – July 21, 2023
Recent challenges
The production of Ferrochrome (FeCr) has encountered a series of challenges in recent times, particularly in China and other parts of the world. Issues such as heat waves, reduced hydropower generation, maintenance programs, and a decline in demand have all contributed to a decrease in FeCr production. These factors are significantly impacting the global market, leading to falling prices and uncertainties in the industry.
One of the major factors affecting FeCr production in China is the ongoing heat wave in the Sichuan province. Sichuan, known for its abundance of hydropower generation, has faced a drop in hydropower output due to a decrease in precipitation during the spring season. With high temperatures and minimal rainfall expected throughout the summer, the province is bracing for potential power shortages, estimated to be around 75 million kWh. In response, the local government has taken measures to alleviate the situation, requesting energy-intensive enterprises, including three major FeCr producers – Mingda Industrial Co, Yunxing Dianye Co, and Jiaqing Metallurgy Co, to reduce their output by operating only one furnace each from July 3rd to July 21st. This reduction in production is expected to amount to approximately 4,000 to 5,000 tonnes of FeCr, a seemingly insignificant quantity but could impact the market given the already precarious supply-demand balance.
Adding to the pressure on FeCr prices is the decline in demand due to the “summer slowdown” and maintenance programs undertaken by mills. In June 2023, both European and US spot HC FeCr 62-70% Cr prices experienced significant drops of 25% and 11%, respectively. The situation is further complicated by reduced HC FeCr supply from South Africa during the third quarter, as they lower utilization rates to cope with higher power tariffs. However, once the mills come back to full operations, demand for HC FeCr is expected to rise. The Chinese domestic HC FeCr price has also been affected, falling by 1.2% to RMB 8,500/t, primarily due to an expected slowdown in demand from the stainless steel sector during the summer months in regions with abnormally higher temperatures.
Despite the current challenges faced by the FeCr market, there is optimism for a potential price increase in the third quarter. CRU’s FeCr forecast indicates that the tighter market conditions during this period should contribute to a price rise for HC FeCr, particularly in Europe and the US, where prices are nearing the bottom. The demand from the stainless steel sector in these regions remains strong, while substantial HC FeCr imports from China are expected. However, it is crucial to monitor the situation closely, as further production cutbacks might occur if tender and spot prices fall too low, which could help stabilize HC FeCr spot prices in China during Q3 2023.
One company affected by the challenging market conditions is Merafe Resources. The company reported a 9% year-on-year reduction in their attributable HC FeCr production during the first half of 2023. This decrease in production is a result of a planned pullback in response to high electricity demand and elevated power prices during the winter season. Only the Lion smelter was scheduled to operate during this period. As a result, Merafe’s attributable FeCr production dropped from 203 Kt in H1 2022 to 185 Kt in H1 2023.
In conclusion, the FeCr industry is facing various hurdles that are impacting production and prices on a global scale. The challenges in China due to a heat wave and reduced hydropower generation, coupled with maintenance programs and subdued demand in Europe and the US, have contributed to falling prices. However, there is hope for a potential recovery in prices during the third quarter, as the market tightens and demand picks up. Nevertheless, uncertainties remain, and industry players must stay vigilant in monitoring the market dynamics to adapt their strategies accordingly.
