Double-Digit Falls in Ferrochrome and Chromite Demand in 2009

June 3. PR Newswire.  LONDON

Demand for chromite increased by an annual average rate of 4% for the period 2000 to 2008, with ferrochrome consumption increasing by the same amount. However, the onset of the economic downturn from mid 2008 has seen demand for chromium plummet, with prices following a similar path.

Ferrochrome consumption fell by 3.5% in 2008, in year-on-year terms, as major Asian and European consumers reduced orders to a minimum in an attempt to run down inventories, as demand from end-users declined sharply.

Export prices for ferrochrome have fallen by 68% for the ten months to May 2009, as demand from stainless steel, the main end-use for ferrochrome has collapsed. In response to weakening demand and falling prices producers have cut production, in some cases ceasing operations all together. Around 70% of world ferrochrome production capacity was suspended in the first quarter of 2009, with the Xstrata-Merafe joint venture operating at 20% of capacity since December 2008, while Samancor Chrome suspended all production in the first quarter of 2009.

With the sudden disintegration of end-user demand, the forecast is for demand for both ferrochrome and chromite to fall in 2009. Demand for ferrochrome will fall by around 24% in 2009, year-on-year, on the back of the 3.55% fall in consumption in 2008. However, a recovery could begin to materialise from the fourth quarter this year, as the global economic situation begins to ease.

Stainless steel production to recover in 2010

Stainless steel producers are the largest consumers of chromtie, in the form of ferrochrome. The huge increases in stainless steel production in recent years has seen demand for both ferrochrome and chromite reach record highs.

Global stainless steel production has been driven in recent years by emerging markets, with China leading the way. Double-digit GDP growth of recent years has helped fuel China’s growing demand for all commodities, with Chinese producers contributing some 80% of the increase in global stainless steel output since 2000.

However, stainless steel production fell in 2008 by around 7%, as producers attempted to respond quickly to weakening demand as a consequence of the global downturn. Production in 2009 will again fall, as producers cut output, with some operating at well below 50% capacity. On the back of these stringent production cuts, world stainless steel output is forecast to fall by 13% in 2009. However, the market could start to recover as early as the fourth quarter of this year, as a degree of restocking takes place in anticipation of a limited recovery in 2010.

Modest growth for chromium chemicals and metal

Demand for chromium chemicals has declined in recent years, as environmental concerns have seen tightening legislation limits its use in the two main end-uses, leather tanning and metal finishing. Global demand peaked at around 1Mt (sodium dichromate equivalent) in 2001, falling by 32% to 680,000t in 2008.

Going forward, demand for chromium chemicals is going to be modest at best, growing at an annual average rate of 2.5-3% over the next five years.

Strong growth in the aerospace industry in recent years has seen demand for chromium metal increase sharply. World consumption of chromium metal increased by around 13% in 2008 to 40,000t, with demand for superalloys, the primary end-use market for chromium metal, driving the market. Over the next few years, the global downturn will have a negative impact on this market, as the aerospace industry in the USA and Europe declines. The market for chromium metal will decline in 2010, with growth returning in 2011.

Ferrochrome prices to fall by 60% in 2009

Ferrochrome prices were negotiated at USCent69/lb in the second quarter of this year, almost 70% lower than the USCent213/lb peak set in July 2008. Prices for chromite have fallen by 73% to US$140/t from its US$520/t peak in July 2008, while prices for chromium chemicals and chromium metal have both fallen by almost 45%.

Given the weak outlook chromite and ferrochrome demand, prices are forecast to be much lower than those set in 2008. Ferrochrome prices are forecast to average USCent77-80/lb this year, as end-use demand remains depressed. However, prices in the fourth quarter of 2009 could increase on the back some restocking. Chromite prices are likely to follow a similar pattern, with average prices for 2009 at US$135/t, with a potential 20-30% increase for 2010 as demand returns.