The European contract price of ferrochrome is set to rise in the second quarter, but is unlikely to be sustainable because consumers will start substituting with stainless steel scrap, traders said.
Ferrochrome prices are likely to be driven higher due to improving demand, tight supply and rising costs in the second quarter, traders and producers have said.
One Europe-based trader forecast the contract price for the second quarter will be $1.40/lb or above, from $1.25/lb in the first quarter.
“Of course the price will increase. We just hope that the increase will be sustainable,” the trader said.
“Nobody is interested in seeing prices spike to $1.50-1.60/lb because this will lead to a correction later and this is not so good for the ferrochrome producers or for the stainless steel guys,” he added.
And if contract prices rise substantially in the second quarter lower volumes of the ferroalloy would be booked as substitution would kick in, a second trader said.
“The second-quarter settlement will probably be higher but I don't expect high volumes to be bought because there is a lot of stainless steel scrap around,” he said.
Stainless steel scrap and ferrochrome are key ingredients for stainless steel production.
South African ferrochrome producer Assmang is switching from ferrochrome to ferromanganese production, affecting the country's ferrochrome output.
High energy costs and strikes have also hit production in South Africa.
As costs rise, some South African producers have continued to work at a loss even though spot sale prices have risen in the last few months, the first trader said.
“There are also massive problems in India with chrome ore so Indian producers are selling domestically,” he said.
“China and Kazakhstan will produce more but costs are up and demand is actually recovering.” - Reuters