Wang Yonghua: Chrome ore market likely to keep stable with slight fluctuations

----Interview with Wang Yonghua, vice general manager of Lianyungang Dongshuo International Trade Co., Ltd.

Asian Metal: Thanks for sharing with Asian Metal and all participants about the chrome market. Firstly, could you please give a brief introduction to the market in 2010?
Wang: Generally speaking, the chrome market in 2010 was not as good as that of the previous year. It was not bad in the first half of the year, with good demand and relatively high prices, and most traders and smelters gained profits. It reached a peak in the middle of this year, or rather June and July, and there were many imports by Chinese traders. Then the demand and price dropped, causing great losses to many companies. We purchased some amounts of South African concentrate chrome ore 44% at the price of USD330/t CIF China at that time, but later prices dropped to about RMB41-42/dmtu ex ports. The later half was a hard time for both traders and smelters as negative policies from the government caused sharp decrease of chrome ore demand. Most traders were selling their materials below costs in the later half of the year.
Asian Metal: What do you think are the reasons for the current weak market?
Wang: The market has kept weak in the whole later half. “Energy Saving and Emission Reduction” policies reduced outputs of smelters, making the demand of chrome ore smaller. But the demand for ferrochrome didn't change much as consumption from major stainless steel mills kept stable. It was expected that short supply of ferrochrome would drive up the market, but large amounts of imported materials brought great negative influences to the domestic market, which remained weak till now.
Asian Metal: We got to know, from data of China Customs, that the total amount of imported chrome ore was as high as 911,129t in November 2010 and the market is facing great stock pressures right now. Why were there so many imports despite of the weak market?
Wang: There were several reasons causing this phenomenon. Firstly, the relatively good market in the first half year brought great profits to domestic traders and smelters as well. When the market rose up, participants imported many materials, but then the market began to decrease. Besides, the current chrome ore trading market is a little bit different from that of the previous years as more enterprises doing unrelated business have entered the chrome ore market. Some state-owned and well-funded companies purchased chrome ore at high prices, but then the market dropped sharply, causing these companies to stock their materials in the ports.
Asian Metal: How would the entry of those enterprises affect the market? Would it cause more traders to undersell their materials?
Wang：It’s quite normal for traders to sell their stocks at low price when the market is weak, but this phenomenon is less frequent than it was in previous years. Companies who survived the economic crisis in the year 2008 were all well-funded. So even when the market is sluggish and some traders meet financial problems, they would be cautious in underselling their materials and the prices would not be much lower than mainstream prices and the amounts would be small. For example, if we held 10,000t of chrome ore on hand and unfortunately met financial difficulty during the weak period, we would sell 1,000-2,000t for one time and sell another 1,000-2,000t later if the market kept slack, in order to get enough working fund.
Asian Metal: Prices from foreign suppliers keep higher than those in Chinese domestic market, and the consumption is slow, but why foreign offers remain so high?
Wang: In fact, this phenomenon was not quite common in the years of 2006, 2007 and 2008. But since 2009, it has become common for foreign prices to be higher than domestic ones and it is quite difficult to change this situation as foreign suppliers pay close attention to the market in China. As long as there are trends for price increase, offers from foreign suppliers would rise before the demand has real improvement in China. And as about 95% of chrome ore consumed in China is imported, so it is quite hard for Chinese participants to hold control of the market.
Besides, many smelters can directly import chrome ore from foreign suppliers, and this makes it harder for domestic traders as prices from smelters are usually USD10-20/t higher than those from domestic traders. And to sustain production, smelters don’t mind this small price margin. That’s also a reason for foreign offers to remain at high levels.
Asian Metal: Do you think the weak situation of chrome market would meet an improvement in the short term？
Wang: I don’t think so. We should consider this problem from the very downstream industry—the stainless steel industry. The European economy kept weak this year-- we can see that from the Greek and Irish economic crisis--and this caused the weak demand of the stainless steel industry. India and South Africa would export more ferrochrome to the European market when the market is good as prices to the European market are usually higher than those in the Chinese market. But the weak demand from European steel industry caused more materials to be exported to China. I think this influence would continue for some more time.
Asian Metal: Power prices in South Africa were reported to have an increase step by step in the coming years. Would this cause price increase of ferrochrome from this country? Would it become good news for the Chinese market?
Wang: There might not be as many effects as it is expected. The price base is quite low in South Africa, which is only about RMB0.2-0.3/KWH, but power prices in China are generally above RMB0.5-0.6/KWH. Besides, power prices only take small proportions in whole production costs due to special production techniques in South Africa.
Asian Metal: What suggestions do you have for traders and smelters in China?
Wang: The most import thing is to pay more attention to foreign resources, especially their prices, and to avoid risks as possible as we can. Offers for Turkish lumpy chrome ore 40-42% have reached high levels of USD370-380/t CIF. We imported some amounts of the materials when prices were at USD350-360/t CIF, so we would watch for some more time.
Asian Metal: Do you think the market would have any changes before and after the Spring Festival?
Wang：As many smelters have replenished some amounts of chrome ore in the past weeks, we received fewer enquiries these days. Also, as we know, about 40-50% of smelters would suspend production for several days for equipment maintenance during the festival. So I think the demand from smelters would not become strong before the festival and prices might also remain stable. As for the market of2011, I think it might keep generally steady with slight fluctuation. Most major smelters in South China were running normally right now and were not influenced greatly by tight power supply in the dry season, as they use major power grids instead of small hydropower. As for output in North China, it might have a slight increase after the Spring Festival, but the demand for chrome ore is unlikely to have great changes. I predict the market after the Chinese New Year is not possible to be higher than the current market.
Asian Metal: Does your company have any further development schedules?
Wang: As for this, we should go back to the topic, that is, to get more advantages of foreign sources. In spite of strengthening our relationship with former suppliers of Omani, South African, Turkish chrome ore, etc., we have made other developments. We rented a warehouse in Karachi, Pakistan for chrome ore purchase. As long as the quality and price are good, we would purchase the material, even for small amounts of 100-200t. This would help us become more advantageous in chrome ore trading.
Asian Metal: Thanks for your brilliant analysis of the chrome market. Wish you a happy new year and a better future of your company--Lianyungang Dongshuo International Trade Co., Ltd..
Wang: Thank you!