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METALS
NEW REPORT ANALYSES CHROMIUM MARKET - 01 April 2005
The combination of strong demand, tight supply and sharp rises in the costs of freight, energy and chromite raw materials, meant ferro-chrome prices reached their highest levels for ten years in early 2005, at US¢72-74/lb, according to a new report from market analyst Roskill.
This represents a significant recovery from early 2002 when prices of US¢27-29lb were at their lowest level for 30 years and some 1.3Mtpy ferro-chrome capacity was idled.
The Economics of Chromium (10th Edition, 2005) explains that the recovery in the ferro-chrome market was primarily due to the growth in stainless steel production, which is forecast to maintain strong growth through the mid 2000s, led by Asian demand.
Chinese output of stainless steel is estimated to rise from 1.8Mt in 2003 to at least 6Mt in 2008, with growth concentrated in the next two to three years.
However, recent high prices and expectations of continued growth in demand have encouraged plans for significant capacity expansion.
Commissioning of all proposed capacity would result in the ferro-chrome market moving back into surplus, exerting downward pressure on prices.
The cyclical nature of the ferro-chrome market has resulted in a high degree of vertical integration between chromite mining and ferro-chrome production, and concentration of production among relatively few countries and producers.
The increasing vertical integration has put severe pressure on non-integrated producers at times of low ferro-chrome prices.
As a result, over the past six years ferro-chrome plants have closed down in Croatia, Italy, Norway, Poland, Romania, Slovenia, Spain and the USA.
With a combined output of 3.7Mt in 2003, South Africa and Kazakhstan accounted for nearly two-thirds of world ferro-chrome production, a rise from 42% in 1994.
The formation of a joint venture between Xstrata Alloys and SA Chrome in early 2004 created the world's largest ferro-chrome producer. The Xstrata-SA Chrome Venture, Samancor Chrome of South Africa, and Kazkhrom of Kazakhstan are the leading producers of chromite and ferro-chrome, accounting for nearly 55% of world output of both products.
South Africa and Kazakhstan are also the countries with the greatest potential to increase production, thereby leading to further concentration of the chromite and ferro-chrome supply.
The largest expansion planned by the Xstrata-SA Chrome Venture could potentially increase total ferro-chrome capacity to 2.55Mtpy by the end of 2010.
In Kazakhstan, Kazkhrom plans to raise chromite pelletising capacity by 400,000tpy during 2005. In the long term, Kazkhrom may become forwardly integrated into stainless steel production, aimed at meeting Chinese and Russian demand.
Structural change is underway in the South African industry, with Chinese and Indian companies taking or planning to acquire interests in South African operations. Traditionally swing suppliers of ferro-chrome on world markets during periods of high prices, China and India became net importers of ferro-chrome in the early 2000s and acquired interests in South African operations to secure raw materials.
There has also been a change of ownership of South Africa's second largest producer. In February 2005, BHP Billiton and Anglo American reached an agreement for the sale of Samancor Chrome to Kermas Group of the UK for US$469M.
Market economy demand for chromium chemicals is estimated to have fallen by 3% in 2003, and a similar rate of decline seems likely to continue throughout the mid 2000s. Increasing concerns over environmental and health risks associated with hexavalent chromium have resulted in restrictions on the consumption of chromium chemicals in wood preservation, pigments, leather tanning and metal surface treatments.
In contrast, the outlook for the chromium metal market is for increasing growth over the next five years. Demand was severely depressed between 2001 and 2003 as the aerospace industry suffered its worst recession for 30 years and low levels of economic activity reduced demand for superalloys in industrial applications.
The upturn in the aerospace and industrial turbine markets has been reflected in higher chromium metal demand since 2004. Consumption is estimated to have risen by 15% in 2004, and could increase by a further 25% to 25,000tpy in the late 2000s.
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