Steel Alloys: The year in review for vanadium, chromium and molybdenum
Thursday, Dec 15, 2016
It was a mixed year for commodities in 2016. Overarching trends included debt reduction by the major public mining companies, adjustment to China's slowing economy, and market reactions to the growing public sentiment against 'business as usual' - the European referendum vote and the presidential election in the USA.
Prices for a number of commodities were at several-year lows as the New Year began. But by mid-2016 commentators and companies alike were calling the bottom of the market, and commodity prices appeared to be supporting this: increases were seen in aluminium, crude steel, iron ore and across a range of minor metals and industrial minerals.
Moving into 2017, stability appears to be the key aim of the major miners. For steel alloys in particular, the outlook for 2017 is positive - with vanadium feedstock availability set to be tight amid the growing buzz around vanadium redox batteries.
Vanadium
The year started with vanadium prices at a considerable low, with ferrovanadium prices having dropped from over US$22/kg at the start of 2015 to below US$14/kg by the end of the year. In 2016, prices slowly recovered, reaching over US$20/kg by November.
The hype around vanadium redox batteries (VRBs) also continued, buoyed by the news that several producers and projects were collaborating with battery-focused companies. Notable developments included a memorandum signed by Largo Resources with Vionx Energy and the development of a pilot vanadium electrolyte plant by Australian Vanadium.
Most market participants expect prices to continue to improve over 2017, with vanadium demand from the steel sector forecast to grow at a steady rate; the buzz around VRBs set to continue; and the availability of feedstock expected to remain tight.
Chromium
It has been a difficult few years for chromite and ferrochrome producers. Demand for stainless steel recovered after the global economic downturn, and so too did prices in 2010, 2011 and 2012. Thereafter, falling production costs coupled with, at times, oversupply and relatively sluggish demand caused prices to stagnate and then fall. By Q1 2016, prices were at six-year lows.
The depressed market had major implications for South African ferrochrome producers. While, on average, costs declined, ore and reductant costs fell substantially while electricity and labour costs dropped much more modestly. Market conditions brought about the closure of several ferrochrome operations, many of which also struggled without a stable supply of ore - forcing them to buy feedstock on the spot market. By mid-2016, four out of 14 South African smelters were idle, and two were partly idle. Of the eight producing companies in South Africa, four were not producing any ferrochrome (Assmang, ASA, IFM and Tata Steel KZN). Three of these, IFM, Tata Steel KZN and ASA Metals, had entered business rescue the previous year.
In H2 2016, there was a dramatic recovery. By Q3, chrome ore prices had recovered to their highest levels since the global economic downturn. UG2 chrome ore (42%) prices increased from US$85/t in January to US$210/t at the end of September, and have since risen to over US$380/t. South African 44% concentrate was up to US$410/t in November. This was mostly driven by Chinese demand for South African ore for ferrochrome production, which improved considerably as the year progressed owing to stimulus-linked demand and dwindling inventory levels in China.
Price recovery, and a series of takeovers, started to consolidate and revive the South African sector as bigger producers acquired the assets of smaller, struggling operations. Traxys acquired Tata Steel KZN's ferrochrome plant in Q2. ASA Metals accepted an offer from Tubatse Ferrochrome, a joint venture between Samancor Chrome and Sinosteel, in Q3. In Q4, Samancor Chrome restarted production at the plant formerly owned by IFM, after acquiring the operation earlier in the year. Further, Afarak announced that it was converting silico-manganese furnaces at its Mogale Alloys plant to ferrochrome, to reduce its exposure to high manganese ore prices. More consolidation could occur over the coming months. Several market participants have suggested that Glencore is considering the purchase of Hernic's operations.
In 2017, it is likely that ferrochrome prices will remain strong in Q1 and possibly Q2. Thereafter, with higher prices incentivising more and more ferrochrome production from currently unutilised capacity in China, Kazakhstan, India and idled capacity in South Africa, the market may find itself in oversupply, which will eventually drive prices down. This will relieve demand for chrome ore and subsequently lead to lower chrome ore prices.
Molybdenum
The molybdenum market showed a strong recovery in 2016, with US ferromolybdenum prices increasing from a low of US$6.14/lb in January to a peak of US$9.39/lb in June. In the second half of 2016 however, poor demand from downstream industries led to US ferromolybdenum prices tailing off, averaging US$9.04/lb in Q3 and forecast to average US$8.20/lb inQ4 2016.
The strong recovery in pricing has been led by better than anticipated stainless steel production in China, with the international Stainless Steel Forum reporting a 4.1% y-on-y increase in global output and a 7.9% increase in Chinese output in the first half of 2016. The recovery in crude oil prices also supported increased production and exploratory drilling in North America, which contributed to marginally increased demand for molybdenum-bearing steels.
In addition to greater than expected demand, major molybdenum producers cut production in 2016 in a bid to tackle oversupply in the industry. Freeport-McMoRan, the largest molybdenum producer in 2015, is targeting a cut-back in production of 19% (7,900t Mo) largely from the Henderson and Climax primary molybdenum operations in the USA.
Chinese producers, including China Molybdenum and Jinduicheng Molybdenum, are also expected to reduce production by 15% and 7% respectively in 2016, though total Chinese production is forecast to fall by 12% compared to 2015. Global output of primary molybdenum production is forecast to total 231,700t Mo in 2016, placing the industry in near supply-demand parity.