EXPLORATION ’94 — Cutbacks leave ferrochrome in supply

Stringent cutbacks in production at a time of high demand from the stainless steel sector mean that demand for ferrochrome exceeded market economy supply in 1993, according to market analyst Roskill of the United Kingdom.

The Economics of Chromium 1993 says this shortfall may be met by increased exports of low-priced ferrochrome from the CIS or by increasing capacity utilization at plants in South Africa and elsewhere.

This study, and two other Roskill commodity studies — on titanium and feldspar — form the basis of this article.

The ferrochrome report says that although there has been a marked revival in the key market for chromium, stainless steel, this has failed to have any impact on the prices for ferrochrome.

Market economy stainless steel production rose to a record level of 11.1 million tonnes in 1992 and is likely to have reached 11.5 million tonnes in 1993. Prices for charge chrome, however, fell to US32 cents per lb. in the first quarter of 1993: Roskill says that this price is below the costs of any market economy producer. By the middle of the year, many leading ferrochrome producers were operating at less than 50% capacity.

The onset of the recession at the start of the 1990s coincided with a 20% increase in production capacity in the market economy countries, much of this in South Africa. At the same time, increasing quantities of alloys started to reach the market from the CIS, Eastern Europe and China. The supply of ferrochrome from the CIS and China to Western markets rose dramatically from 83,000 tonnes in 1990 to more than 260,000 tonnes in 1992.

Producers in South Africa responded to prices below US50 cents per lb. by sharp cutbacks in production. Additional cutbacks have followed in Japan, the Philippines and Zimbabwe.

The market is now in imbalance and demand from the stainless steel sector has probably exceeded total supply in 1993. In the first half of the year, market economy demand was estimated at 1.21 million tonnes, around 120,000 tonnes higher than supply, which Roskill estimates to be 1.09 million tonnes including around 150,000 tonnes imported from eastern Europe. The report says that this shortfall may be met by increased exports of low-priced ferrochrome-chrome from the CIS or by increasing capacity utilization at plants in South Africa and elsewhere, and says that the eventual development of market costings (and the subsequent effect on prices) in Kazakhstan, Russia and Ukraine, will have a significant effect on world supply and demand patterns.

Future demand for ferrochrome is primarily dependent on the stainless steel sector which accounts for 90% consumption. Market economy consumption of stainless steel is forecast to rise by 3.5% per annum through the rest of the decade: at this rate of growth, market economy output would rise from 11.1 million tonnes in 1992 to more than 14.5 million tonnes in 2000. Growth in consumption of primary ferrochrome would be lower because of higher use of stainless steel scrap, and higher recovery of ferrochrome-chrome of 2.5% per annum would lead to an increase in market economy consumption from around 2.6 million tonnes in 1992 to 3.2 million tonnes in 2000. During 1993, demand for chromium metal remained weak because of the recession in the military and commercial aircraft sectors in the early 1990s. However, Roskill says that in the medium-term, demand for chromium metal is forecast to increase in superalloys for both aerospace and other applications. Outside the aerospace sector, increasingly stringent environmental legislation is opening up new, expanding markets for chromium metal in superalloys, for flue gas desulphurization plants, for incineration systems destroying hazardous waste, for tubing and vacuum furnaces in the power industry, in steam reformers and in industrial gas turbines. After a decline in titanium consumption between 1989 and 1991, the titanium pigments market is now recovering, says Roskill in The Economies of Titanium 1993.

Growth in global demand for Ti02 will average 2-3% per annum until 2000: however, no such recovery is expected in the titanium metal market for some years.

World demand for titanium dioxide is estimated to have fallen by 8% in 1991 following growth averaging 5% per annum in the late 1980s. The study says growth is estimated to have resumed at a much lower rate in 1992 and 1993 and in the long-term is expected to be between 2% and 3% per annum worldwide. Roskill forecasts that consumption will return to its 1989 level of 3.1 million tonnes in 1994 and will rise by a further 100,000 tonnes to 3.25 million tonnes in 1995.

In two of the major markets for pigment — paints and paper — consumption of Ti02 has been affected by recent technological changes. In the paints market, which accounts for 58% of demand, the increasing emphasis on waterborne and high solids coatings may favor the increased use of Ti02. In papermaking (15% of demand), the switch to alkaline sizing has seen a drop in Ti02 consumption. The main area of potential growth in Ti02 demand is provided by the plastics industry, currently accounting for 16% of demand: growth is estimated at 5% per annum or more in the medium-to-long-term.

Ti02 producers have responded to the slow growth in the market by concentrating on product development and added value. The report points to ultrafine Ti02 pigments as one area which has attracted company investment despite their relatively small potential in terms of tonnage. The major producers have also introduced more versatile product ranges and established service and distribution networks.

Producers of titanium metal have seen a devastating fall in demand from its main consuming sector, the world aerospace industry. Dramatic cuts in defense budgets and poor financial performance of civil airline companies are largely responsible for the downturn. Roskill says that world production and consumption of titanium sponge is estimated to have fallen by nearly 50% between 1990 and 1992, with U.S.output shrinking from some 25,000 tonnes to 12,600 tonnes, and Japanese output from 25,000 tonnes to 14,600 tonnes. Producers in the U.S., Japan and Europe have been affected by an influx of competitively priced imports of sponge, scrap and ferrotitanium from the CIS. During the first five months of 1993, imports to the U.S. from Russia and Ukraine exceeded imports from all other sources. Some sponge from the CIS is of high quality and if it is approved for extensive use in aerospace, it will represent a further challenge to established Western world producers. Deliveries of civilian aircraft are expected to remain at current levels of around 500 a year over the next few years, providing little prospect of renewed growth for titanium fabricators. Producers have been attempting to shift the balance of consumption towards industrial uses, which have traditionally accounted for 20% of end-uses.

The main potential areas of growth for titanium sponge and metal can be identified as the chemical process industry and possibly the oil and gas industry. In addition, flue gas desulphurization in former Eastern Bloc countries, and the building and construction industries in Japan and the U.S. should also provide growing demand. Although they are relatively small volume markets, small specialized fields such as medical and superconducting alloys should also provide steady and strong growth.

As for feldspar, Roskill expects pressure for more diversified suppliers in response to Unimin’s control of most of the Western world’s nepheline syenite output.

Since 1990, the entire capacity to produce nepheline syenite in Canada and Norway has become part of the worldwide operations of the U.S.-based Unimin, which also produces feldspar in the U.S. The Economics of Feldspar 1993 says this dominance of Western world supply may encourage other organizations to develop deposits and therefore to balance the pattern of supply. The rise in Thai production has been remarkable, from less than 50,000 tonnes in 1983 to 523,000 tonnes in 1992. Thailand has now taken the place of the former USSR
as the world’s third largest producer of feldspar, after Italy and the U.S.

Like most other industrial commodities, feldspar has seen a fall in production in the CIS since the reforms of the late 1980s; having reached 335,000 tonnes in 1985 and 1986, production of feldspar in the former USSR and its successor states in the CIS fell to an estimated 250,000 tonnes in 1992. Turkish production of feldspar has grown rapidly in recent years, from around 100,000 tonnes in 1986 to 400,000 tonnes in 1993.

Producers of feldspar suffer from two major disadvantages. The first is that demand from major markets such as the construction and automotive industries is subject to high cyclical trends. The second is that demand in the largest end-use sector, container glass, is susceptible to reductions caused by increased recycling.

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