SMM Analysis: COVID-19 impact to weigh on ferrochrome production

SHANGHAI, Feb 14 (SMM) – SMM estimates China’s high-carbon ferrochrome production at 420,000 mt in February, 47,000 mt lower from January, on the back of shipment curbs after the coronavirus outbreak. Lower production boosts the prospects for ferrochrome (50% Cr) prices, with the market expecting a near-term average price of 6,600 yuan/mt.

Ferrochrome producers restocked raw materials actively between mid-December and early-January, before the Chinese New Year holiday, and the trade volumes shrank since January 12 when the stockpiling had roughly finished. Like previous years, major producers prepared in-plant inventories that could meet production need for 7-15 days, considering that shipments from ports could return as early as five days after the Lunar New Year’s Eve.

However, the coronavirus outbreak prolonged the 2020 CNY holiday by a week, with the national and provincial roads being closed to traffic. Cargo deliveries at Qinzhou port were also banned before February 9. Pre-holiday stockpiles at ferrochrome producers had already depleted before February, and transportation curbs also deterred their shipments. Some producers arranged delivery by railroad, but the transport capacity was limited. Shipment by trucks, meanwhile, has a longer transport duration by nearly a week.

Despite restricted transportation between the upstream and downstream, demand for ferrochrome did not weaken significantly, on the back of scheduled output at stainless steel mills. Prices of various ferrochrome products unusually increased during the CNY holiday, rising over 8% from January 12, SMM assessed as of February 13.

As of noon on February 13, spot prices of high-carbon ferrochrome stood 12% higher than the mainstream purchasing prices by stainless steel mills in their January tenders. This kept some stainless steel plants from calling for tenders for February. SMM learned that major stainless steel producers have seen falling downstream orders but sufficient raw materials. However, demand for ferrochrome may unlikely to decline significantly as stainless steel plants have to ensure stable production.

Shipment curbs for finished products and chrome ore weighed on the production of ferrochrome, and this accounted for the higher prices.  According to SMM statistics, production of high-carbon ferrochrome in China slipped 7.27% on the month to 467,000 mt in January, 3.73% higher than a year earlier. The month-on-month decline compared to a drop of 1.32% in January 2019.

The COVID-19 outbreak has affected the production of 17 ferrochrome plants, including 9 plants in north China and 8 mills in south China, covering an annualised capacity of 73,000 mt, according to a SMM survey as of February 13.

Most producers under equipment maintenance do not have plans to resume in the near term, and plants that cut output said their production in February may decline further. Only a handful of producers will recover soon. Disrupted feedstock supply may drive some mills into maintenance or suspension.

The coronavirus impact will likely to recede in March, with the growth of confirmed and suspected cases slowing down as more measures have been taken to contain the spread of the virus.