 "Chinese expansion keeps lid on ferrochrome prices")
Like in so many other industrial commodities, China has surprised the world by the speed at which it has grown manufacturing capacity of ferrochrome, a stainless steel making ingredient. The surprise in this case is more since bereft of chrome ore, the Chinese ferrochrome industry is totally import-dependent on raw material. Even then, a few years ago, it replaced South Africa to become the world's largest producer of ferrochrome. Global ferrochrome production in 2013 was up 10 per cent to 10.8 million tonnes (mt) with China alone having a share of nearly 4 mt. Last year's rise in world production was largely on account of China, which raised output by a stunning 14 per cent in an oversupplied market. Interestingly, South Africa, which has an overwhelming share of 72 per cent of world chrome ore reserves exceeding 8 billion tonnes (bt) produced 3.2 mt of ferrochrome last year.
Power shortages and high cost of electricity have restrained the growth of ferrochrome industry in South Africa. Smelters there have an arrangement with the country's power utility, Eskom, not to use electricity during peak hours or whenever asked to switch off. Indian industry officials say power supply in South Africa will remain highly constrained for at least another five years. Lack of maintenance has restricted plant availability factor of Eskom electricity generating complexes to 75 per cent and less from 85 per cent in 2010. Improving Eskom operation will require bridging a "funding gap of Rand 225 billion ($20.58 million)". Among the options available to Pretoria for Eskom rehabilitation is inviting private investment.
Almost coinciding with the beginning of South African power crisis, China saw an opportunity to rapidly grow its ferrochrome industry based on ore of foreign origin. Rapid rise in electricity tariffs in the past five years and strict regulation of power use by industrial consumers have slowed ferrochrome capacity growth in South Africa. In this situation, the only way South Africa can go on raising production of chrome ore is by selling more and more in the world market. In the global chrome ore production of 30.3 mt in 2013, up 9 per cent on the previous year, the share of African continent but largely South Africa was 16.18 mt. Availability of growing quantities of UG 2 ore, a chrome ore byproduct secured in the course of platinum mining is too reinforcing South African supply.
The UK-based minerals consulting firm Roskill Information says ferrochrome supply this year could exceed demand by 700,000 tonnes as capacity expansions, mainly in China but also in countries like Oman and Kazakhstan keep on coming online. Further confirmation of the ferrochrome market remaining under pressure in the next three years at least because of "oversupply" has come from business intelligence group CRU. A CRU official says, "Ferrochrome production is anticipated to grow strongly in the near term as Chinese capacity comes on stream and another large-scale power buyback scheme in South Africa is less likely to happen." This means South African capacity will not be cut further. Ignoring other producing countries including India struggling with overcapacity and weak prices, China lifted crude stainless steel production by 17 per cent to 20.5 mt. This was close to half the world output of 40 mt. The size of its stainless steel production will explain why China continues to grow ferrochrome capacity.
Power shortages and high cost of electricity have restrained the growth of ferrochrome industry in South Africa. Smelters there have an arrangement with the country's power utility, Eskom, not to use electricity during peak hours or whenever asked to switch off. Indian industry officials say power supply in South Africa will remain highly constrained for at least another five years. Lack of maintenance has restricted plant availability factor of Eskom electricity generating complexes to 75 per cent and less from 85 per cent in 2010. Improving Eskom operation will require bridging a "funding gap of Rand 225 billion ($20.58 million)". Among the options available to Pretoria for Eskom rehabilitation is inviting private investment.
Almost coinciding with the beginning of South African power crisis, China saw an opportunity to rapidly grow its ferrochrome industry based on ore of foreign origin. Rapid rise in electricity tariffs in the past five years and strict regulation of power use by industrial consumers have slowed ferrochrome capacity growth in South Africa. In this situation, the only way South Africa can go on raising production of chrome ore is by selling more and more in the world market. In the global chrome ore production of 30.3 mt in 2013, up 9 per cent on the previous year, the share of African continent but largely South Africa was 16.18 mt. Availability of growing quantities of UG 2 ore, a chrome ore byproduct secured in the course of platinum mining is too reinforcing South African supply.
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Incidentally, Indian production of chrome ore last year was down 23.7 per cent to 2.55 mt caused by court ordained closure of some mines in Odisha, which alone accounts for well over 90 per cent of the country's 203 mt chrome ore resources. For blending purposes, India is required to import fairly large quantities of ore from Oman and South Africa. But China is the destination for over 90 per cent of global chrome ore and concentrate exports. South Africa alone supplied 6.7 mt of the 12.1 mt ore that China imported in 2013. Chinese ore imports are set to rise as the country remains engaged in building new ferrochrome capacity, defying an already oversupplied scene. Putting its faith in conservation of resources for future local use, India started charging an export duty of 30 per cent ad valorem on chrome ore from March 2012, which earlier was Rs 3,000 a tonne. This resulted in exports declining from 409,000 tonnes in 2011-12 to 202,000 tonnes in 2013-14. Obviously, the Indian move is not to China's liking. For raw material security Chinese companies are investing in chrome ore properties in South Africa and elsewhere.
The UK-based minerals consulting firm Roskill Information says ferrochrome supply this year could exceed demand by 700,000 tonnes as capacity expansions, mainly in China but also in countries like Oman and Kazakhstan keep on coming online. Further confirmation of the ferrochrome market remaining under pressure in the next three years at least because of "oversupply" has come from business intelligence group CRU. A CRU official says, "Ferrochrome production is anticipated to grow strongly in the near term as Chinese capacity comes on stream and another large-scale power buyback scheme in South Africa is less likely to happen." This means South African capacity will not be cut further. Ignoring other producing countries including India struggling with overcapacity and weak prices, China lifted crude stainless steel production by 17 per cent to 20.5 mt. This was close to half the world output of 40 mt. The size of its stainless steel production will explain why China continues to grow ferrochrome capacity.
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