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Strong chrome demand to hold, but views divided on possible deficit

Tokyo — Strong demand for chromite feedstock of ferrochrome will continue to hold on the back of robust Chinese stainless steel output, but views were divided on whether global supply will move into deficit due to constraints of South African production to meet that demand, industry sources told S&P Global Platts Monday.

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Sources said there are two possible scenarios arising from South Africa trying to meet Chinese demand amid stagnated output: the market will be short on chrome ore supply as other global suppliers will not be able to fully meet China's demand; or China will reduce dependency on South African chromite supply and diversify to other resources.

China's stainless steel output, at 24.9 million mt in 2016, had risen 15.7% year on year. Production is expected to continuing growing in 2017, but at a slower pace of 3% or more, said six sources, comprising two analysts, two miners and two traders.

Strong demand, underpinned by China's continuous growth in stainless steel production, will encourage South Africa to keep UG2 chromite feedstock output stable this year.



But incremental supply will likely be limited, given a lack of definitive news on significant new concentrator plant launches over the next few years, which would see the market continue to depend on production from existing facilities, the sources added.

UG2 is a byproduct of platinum production. Platinum mine tailings with chrome content are treated by concentrators, and used as feedstock for ferrochrome production.

With recycled platinum taking up a larger share of overall supply, new primary platinum capacities are unlikely to start up in South Africa in the foreseeable future, said one South African mining analyst.

There is one new concentrator plant, run by a platinum miner in eastern South Africa that came on stream in the fourth quarter of 2016, and a new concentrator is planned for in 2017-2018.

Both plants are used for treating stocks of mine tailings. But with a combined capacity of just over 500,000 mt/year, both concentrators are unlikely to provide any significant boost to South Africa's UG2 supply, analyst and mine sources said.

Meanwhile, views were mixed on the output volume of UG2.

Macquarie Research said UG2 output from South Africa -- the sole producer of the product in the world -- was roughly 6.4 million mt in 2016, up from 6.2 million mt in 2015. It forecasts an output of 6.5 million mt in 2017. UG2 output ranged from 2 million mt/year to 4 million mt/year in 2005-2009.

One South African chrome miner and a chrome ore trader put 2016 UG2 output at about 3 million mt. "I agree about the UG2 output increase from 10 years ago but not to the extent of growing twice as big," said one trader.

South Africa produced 12 million mt of chrome ore from January to October 2016, according to data from the country's Department of Mineral Resources.

This figure includes UG2 as well as LG and MG-grade ore that typically have higher chrome content than UG2.

If supply of UG2 from South Africa is not growing, but Chinese stainless steel demand is, a raw material constraint is a possibility, said the South African analyst, seeing 3%-4% growth in China's stainless steel production in 2017.

"For a 1% rise in [Chinese stainless steel] demand, you need a million mt new chrome ore supply, but no new mine," the analyst said.

"Chinese macroeconomic conditions are still strong and risks such as debt positions and credits, are manageable. In the end, South Africa's ore cannot cover China's demand," said a second mining analyst.

China imported 10.5 million mt of ore in 2016, of which 6 million mt were from South Africa and the rest from Turkey, India, Oman, Pakistan, Albania among others, according to trade data of the countries.

One South African miner and a non-South African miner, however, said supply and demand will stay balanced in 2017.

"There are enough ore supplies in the world and no deficit at all," said the non-South African miner.

UG2 prices have been holding above $370/mt CIF China for the past six months -- up significantly from $100/mt CIF a year ago -- boosting prices of Turkish, Albanian, and other ore supplies, and this will encourage mining outside of South Africa.

In South Africa, supplies of run-of-mine, which are untreated mine tailing, has increased, sources said. The South African miner put monthly ROM output at around 50,000 mt in South Africa.

The two miners said ROM sales by unauthorized suppliers without proper licenses also surged last year.

The South African miner estimated at one point last year, 80,000 mt/month of supply came from such sources, which reduced to 20,000 mt/month following a recent police crackdown.

The lack of ore feedstock supplies in the chrome ore-ferrochrome-stainless steel pipeline in China can also be offset by China using more imported ferrochrome rather than domestic supply, several sources also pointed out.

China produces around 4 million mt/year of ferrochrome.

--Mayumi Watanabe, mayumi.watanabe@spglobal.com
--Edited by Irene Tang, irene.tang@spglobal.com