Understanding Chrome Ore Supply-Demand Imbalance on Historical Data in the Past Decade

SHANGHAI, May 19 (SMM) - China, as the largest producer of stainless steel and even ferrochrome, is poor in chrome ore resources, with more than 98% of chrome ore resources relying on imports. As of 2021, the global chrome ore reserves stood at about 570 million mt, of which Kazakhstan has 230 million mt, accounting for 40% of the total reserves; South Africa 200 million mt, accounting for 35%; and India 100 million mt, accounting for 18%. Kazakhstan, South Africa and India together account for 93% of the global proven reserves. China's chrome resources are very scarce, with only 11.41 million mt of identified resources, mainly in remote areas such as Tibet, Xinjiang and Gansu.

In terms of chrome ore production, global production has been rising since 2010, and reached 41 million mt by 2021. Among them, South Africa produced 18 million mt of chrome ore, accounting for 44% of global production; Turkey 7 million mt, accounting for 17%; Kazakhstan 7 million mt, accounting for 17%; and India 3 million mt, accounting for 7%.

Looking back to China, the chrome ore self-sufficiency rate has been low, and it heavily relies on ore imports, which are vulnerable to international situation, geopolitics, foreign policies, the situation of overseas mines, shipping costs and a series of other factors.

In recent years, events like high shipping costs, unrest and flooding in South Africa, South Africa's plan to increase chrome ore export tariffs, Zimbabwe's plan to ban chrome ore exports from July 2022 have affected the supply of chrome ore in China. To counteract the supply instability, China always maintains chrome ore inventory at port that could sustain the consumption for 1-2 months in recent years. The port inventory of chrome ore has also become a barometer of chrome ore supply-demand situation and is closely related to chrome ore prices.

Although China’s import volume of chrome ore has been rising year by year, the chrome ore port stocks dropped from 2011 to 2016, and stood at 872,000 mt as of October 2016. From 2016 to 2021, with the development of China's ferroalloy industry, and in light of the significant fluctuations in chrome ore prices in 2016-17, large ferrochrome enterprises relied less on spots and increased futures purchases. On the other hand, medium-sized ferrochrome plants mostly stockpiled 2 months or more futures raw materials. For mid to large chrome ore traders, their port stocks also continued to rise. As of December 2021, domestic chrome ore inventory at ports totalled 4.18 million mt.

Production restrictions in China ended around the end of 2021, and ferrochrome manufacturers actively ramped up their production driven by lucrative costs, coupled with the new capacities in the year, lifting ferrochrome output to a historical high of 638,900 mt in December 2021. In this scenario, chrome ore consumption has since been growing sharply, and chrome ore supply is difficult to keep up with the rapid growth in demand, resulting in constantly falling port stocks.

Chrome ore prices have been running relatively stably in the past decade around 35 yuan/mtu. The fluctuation of chrome ore price is somehow correlated with chrome ore port inventory. In 2016-2017, as chrome ore port inventory fell below 900,000 mt, the spot price of 40-42% South Africa chrome ore concentrate rose rapidly to a high of 76 yuan/mtu. Later since the end of 2021, chrome ore port inventory has been falling, and chrome ore prices recorded a new high after 2017 at 56 yuan/mtu.

Chrome ore prices are likely to return to normal in the case where chrome ore imports increase along with rising ore prices, while chrome ore demand drops amid falling stainless steel output caused by rising ferrochrome prices that results in stock accumulation.

But at the current stage, the port inventory still remains low, and short-term chrome ore supply is restricted by multiple factors like mining capacity, port transport efficiency and other factors. The supply and demand are likely to remain weak under pressured purchasing demand of futures goods in light of high chrome ore prices as well as limited arrivals at ports. Therefore, chrome ore prices are expected to remain stable in the near future.