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Couldn’t make it to Baotou to the ICDA conference? We share our notes! (Part 1)

Couldn’t make it to Baotou to the ICDA conference? We share our notes! (Part 1)

market insights

November 23, 2018

Sebastian Kreft, Managing Director of Metalshub, participated in 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 are the author’s personal notes and key takeaways.

Gorkem Kavcak (Yildirim): “Turkey Chrome Market and Relation with China”

Gorkem’s presentation cover shows in a humorous way how the Turkish chrome ore industry is losing market share to South Africa. Turkey’s share of chrome ore imports into China has been falling over the last years – the reason is that Chinese FeCr smelters have used more low-grade chrome concentrates.

Chinese Chrome ore stocks are cyclical – they were 3.9Mt in 2011, went down to 1Mt in 2017, went up to 3.5Mt in 2018 and are now back down to 2.8 Mt.

Citing CRU as the source, Gorkem expects that HCFeCr supply (13.15 Mt) will exceed demand (12.97 Mt) in 2018. In his view, the supply overhang explains why prices have declined this year. Global stainless steel production will increase in 2018 to 51 Mt thanks to a contribution of 2.8Mt from Indonesia and India.

The US has introduced a 25% import tax on stainless steel and some US consumers have already accepted a 20% price increase. As a consequence, the US is importing inflation and there are spillover effects into other markets further downstream in the supply chain.

Outlook for 2019:

  • Stainless steel production growth in the US and EU is healthy but Indonesia will be the growth driver. Ferrochrome demand is healthy and driven by Asia
  • No new investments in FeCr supply expected

Sebastian Kreft (Metalshub): “Digitisation – opportunity or threat for the ferrochrome industry”

Commodity trading enters the age of digitisation. What is important, however, is to look beyond the hype and analyse which digital technologies and business models create real value.

Sebastian points out there are three promising developments: platformisation, logistics & supply chain management and trade finance.

Platformisation is happening in most commodities: the LME is an electronic platform for base metals trading, GlobalCoal for met coal and thermal coal, GlobalOre for iron ore etc. Metalshub is aiming to fill this gap for ferroalloys. Platforms offer significant benefits over traditional channels.

  • Concentrate liquidity
  • Increase productivity by automating tasks
  • Boost compliance
  • Socialize Know-Your-Customer (KYC) costs
  • Provide additional information through a rating system
  • Standardise General Terms and Conditions

Amazon and Alibaba are on an aggressive growth path to enter traditional B2B markets such as steel and metals. A clash between these horizontal platforms and specialized industry platforms seems unavoidable.

The logistics and supply chain space sees the rise of digital freight booking services. Similar to platforms which compare prices of flights, these new platforms create transparency in container shipping. Moreover, several consortia have been formed with the aim to digitize shipping documents such as B/Ls and CMRs. The oil industry is taking the lead in the commodity space where Mercuria, ING, and SocGen have executed a paperless trial trade.

Finally, trade finance is a fruitful field for innovative, digital approaches which create value. The leading credit insurance provider EulerHermes has developed a transaction based credit insurance which uses artificial intelligence to learn from piles of invoice data to better estimate default risks. Finally, trade finance banks are using blockchain technology to prevent falsifying documents like warehouse warrants which had led to the infamous Qingdao scandal in 2014.

Clara Sadomba (Zimasco): “Zimbabwe Rebound - Analysis of a Major Chromium Player”

Zimbabwe is the country with the second largest chrome resources (12% of the world), second only to South Africa (72% of the world).

The Zimbabwean government banned the export of chrome ore in 2011 in an effort to encourage in-country beneficiation. This remains the medium/long-term strategy of the Zimbabwean government. However, to assist revenue inflows, the government lifted the ban in 2015 with a provision that exports will not exceed 30 million tons. Following the lifting of the chrome ore export ban in Zimbabwe, chrome ore production grew exponentially from 0.2 Mt in 2015 to 1.7 Mt in 2018.

Zimbabwe ferrochrome Industry consists of 13 companies which are expected to produce 378kt of High Carbon Ferrochrome in 2018. 60% of production is from two companies, namely Zimasco and Afrochine.

In 2018, the world’s largest stainless steel producer Tsingshan of China signed a memorandum of understanding with the Zimbabwe Government to chart the path to build a stainless steel plant in Zimbabwe.

Han Jianbiao (Custeel)

NPI (nickel pig iron) production was a profitable business in China in 2018; profitability of stainless steel production was not so good.

Han expects a scrap ratio of 35% in China by 2030. In H1 2018, the scrap ratio was 15-17%, in H2 2018 it was 24-25%. The reason for the increase in H2 was that NPI plants had to close due to environmental inspections. When the nickel price rises, the economics for using scrap by Chinese mills are improving.

Tsingshan in Indonesia is now producing SS at an annualized rate of 3Mtpa. 6 new SS plants are planned in Indonesia which would be a 5-6 Mt capacity increase.

Han expects for 2019 that 300 series output will grow by 5%, 200 series by 2-3% and 400 series by 2%. The profit potential for 300 series is better. Stainless steel demand in China can grow further, especially in the civil engineering sector (e.g. water pipes).

Han expects nickel prices to drop in 2019, stainless steel prices will be stable because the market is in balance.

Robert Messmer (SMR)

  • Tsingshan plant in Sulawesi (Indonesia) is the lowest cost SS plant in the world with production costs of 1,500 $/mt à production cost of the second lowest plant in the world are 200 $/mt higher
  • Robert sees growth potential for SS in Africa because of strong population growth and growing per capita SS consumption
  • When asked by the audience, Robert confirmed that the SMR forecast on FeCr is less pessimistic than the McKinsey forecast
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