Sebastian Kreft, from the Metalshub team, visited the ICDA conference in Baotou from 6-8th of November 2018. It is quite a trip to get to Baotou! But given that the entire chrome industry gathers, it was definitely worth it. Here is the second part of the author’s personal notes and key-takeaways.
Shaun Rein (CMR China, author of “The War for China’s Wallet”)
Shaun is an American book author who has lived more than 20 years in China. Shaun’s main point was that geopolitics is becoming more and more important for business – he holds a pessimistic view of the current situation in the world:
Shaun predicts that political tensions between the US and China will rise further and he is personally worried that neither side will back down. He explained that both the seven most influential families and the large blue collar working class in China have a nationalistic attitude. This will support China’s drive to become a rival to the USA.
Important for businesses: China “punishes” companies which do not support its worldview (e.g. Marriott listing Taiwan as a country) and supports companies which are China-friendly (e.g. Ethiopian Airlines).
Shaun warns that nobody wins a trade war, free trade is better. In his view, the US is underestimating how many countries dislike the USA.
Karl Liu (ChinMetal): “The outlook of Ferro Chrome Industry Development of China”
The trade war between US and China has damaged the Chinese stock market which has dropped 30% in 3 months.
1.5 Mt of new ferrochrome (FeCr) capacity is planned in China of which 60% is coming to the market in 2019. FeCr output in the province of Inner Mongolia is increasing due to low power and logistics costs (only 500km from Tianjin port). Moreover, the large, new plants in Inner Mongolia have larger furnaces which are more economical. FeCr output in the province of Sichuan is decreasing because of high power cost. New smelters will require more chrome ore which should support demand and ore prices.
For 2019, Karl expects ferrochrome supply outstripping demand by 800kt in the Chinese market which should result in fierce competition in the market.
Hao Heming (Argus Media): “2018 Chinese ferrochrome Market Review and Forecast”
A spontaneous debate between representatives from Mintal and Yildirim developed: Yildirim insisted that Chinese FeCr smelters need to buy high grade ore at a premium price. Mintal replied that South African UG2 concentrates with 42-44% Cr content are enough and that price is important.
Jochen Berbner (McKinsey): “Chrome market perspective”
Jochen paints a rather negative picture for the future of the ferrochrome industry.
Scrap usage of Chinese stainless steel (SS) mills is increasing; Jochen expects that Chinese scrap ratio will increase from 18% in 2017 to 35% in 2030; in another scenario even to 40%. In the Q&A it was pointed out by someone in the audience that scrap usage in China is limited when using the NPI (nickel pig iron) route to produce SS. When using NPI to produce SS, most iron units come from NPI. A high scrap ratio would result in excess iron units in the melt.
Jochen expects the share of 300 series to decrease significantly; from 52% in 2017 to 48% in 2022; in other scenarios, it drops to 40% and even as low as 35% in another scenario. During the Q&A, this assumption was challenged by several people in the audience, who pointed out that actually in recent years 300 series has been increasing
GDP in China is slowing and Jochen forecasts chrome demand growth to slow to 1.1% CAGR from 2018 to 2027 (it was 5% CAGR from 2007 to 2017). McKinsey forecasts an SS growth of 2.6% p.a. During the Q&A someone in the audience stated that 2.6% is a very low annual growth rate compared to historic growth rates; it might underestimate SS demand from new applications.
As a result, Jochen’s models forecast an oversupply of 1.7 Mt of chrome units by 2022 and stagnating HCFeCr prices between now and 2022.
Victor Constant (ICDA): “Chrome industry overview”
UG2 chrome concentrate output grew from 4.4Mt in 2016 to 5.1Mt in 2017. This trend was confirmed in H1 2018. There are 175 FeCr plants in China of which 68 were fully active in H1 2018. Victor expects a concentration, less but larger plants.
Lauri Närhi (Outotec): “Future of FeCr Industry: Environment and Economy Combined”
Producing FeCr is energy intensive and CO2 production is significant. It is what it is. There will be more pressure from regulators and consumers to minimize the footprint. The CO2 footprint can be improved by making the right decisions with regards to equipment and location of a FeCr plant.
Nils Backeberg (Roskill): “Chromium markets: Changes in the supply structure”
UG2 chrome concentrate production growth is approaching a ceiling – UG2 supply is linked to the platinum industry in South Africa which is not growing. UG2 has become the standard use in Chinese plants. Mintal is opting to use 100% UG2 although the original design was for 50% Turkish ore.
If you missed the Part 1 of these notes, you can read it here.
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