The following is an edited release by London-based metals market consultants Roskill. For more information, visit www.roskill.com.
The current price for primary South African chrome ore of around US$170 per tonne (CIF China), places the price at around the 80 percentile of the chrome ore cost curve for supply sent to China.
Exporters of chrome ores experienced tightening margins in 2018, when the price declined to the 90 percentile based on an average annual price, although prices had already reached their present-day low level in August 2018, making the highest cost producers unprofitable for over 10 months.
A surge to over 21 million tonnes of chrome ore supply from South Africa, the largest chrome ore producing country with the largest resources and reserves, has kept the market in a significant surplus over 2018, which we at Roskill estimate to be on the order of 1 million tonnes of contained chromium - equivalent to approximately 3.5 million tonnes of metallurgical-grade chrome ores.
The increased supply from the country was encouraged following a three- to four-fold price spike in the fourth quarter of 2016 and ensuing price volatility over 2017 and into the first half of 2018.
Despite the declining price over 2018, South African supply continued to increase, and Roskill expects the surplus market to only be partially eroded in 2019.
Much of the increase in supply has come from cheaper by-product chromite concentrates, the South African UG2 chrome ores, which are extracted together with platinum group minerals.
The stagnating platinum industry has encouraged UG2 miners to improve company financials with by-product chromium credits and, as a result, Roskill forecasts the utilization of available UG2 ores to increase to over 70% in 2019, up from below 50% a decade ago.
One of the key questions regarding the outlook of chrome ore supply hangs around the potential growth of cheaper UG2 ores. The scale of UG2 mining is directly linked to the performance of the platinum industry and Roskill forecasts the level of UG2 chrome ores to reach a ceiling in the second half of the 2020s.
The fundamental demand for chromium remains strong, as consumption is directly linked to the production of stainless steel. Stainless steel production, which accounts for 78% of chromium demand, is expected to grow at a compound annual growth rate (CAGR) of 3.1% over the next 10 years, albeit significantly reduced compared to the 5.8% CAGR of the last decade.
Nevertheless, a currently overshadowing surplus supply will have to keep pace with growing demand. Roskill's chromium market analysis forecasts the industry to move beyond the UG2 potential in 2027, which could refocus the attention back on primary ore suppliers.
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