Chinese ferrochrome market under pressure as import tax is scrapped
Source: www.chinamining.org Citation: Platts Date: January 4, 2015
The Chinese domestic ferrochrome market is expected to remain under pressure after the 1% import tax on ferrochrome with more than 4% carbon was scrapped.
Exporters lauded Beijing`s decision in December. The 1% import tax was factored into the selling prices quoted to Chinese buyers, they said previously.
Removal of the 1% import tax will give sellers higher price realization, they added.
The cancellation of the import tax, along with the cut in Q1 European ferrochrome term price announced in December, does not bode well for the Chinese domestic market in the near term, said an official with the raw material department of an east China stainless mill.
Chinese domestic ferrochrome prices have been trending downward since July 2013 amid ample supply and low demand.
By November 2014, domestic spot prices of high carbon ferrochrome (50% Cr) had fallen to Yuan 6,200-6,400/mt (equivalent to 76-79 cents/lb), down 10-11% since July 2013.
Sentiment turned bullish in late November and domestic prices rebounded to Yuan 6,350-6,500/mt in early December following production cuts in the country, which saw major Chinese stainless steelmakers lift their monthly purchase prices in December.
The bullishness proved short-lived, however, and steelmakers rolled over their January purchase prices from December.
"The overall weakness in the market will continue. Some tightness may continue in the market till March. But not many buyers are bullish now," a Hong Kong-based trader said.
The cancellation of the 1% import tax on imported ferrochrome indicated that Beijing was not supportive of further expansion of the domestic ferrochrome industry, market watchers said.
"China is moving towards decreasing ferrochrome manufacturing. The import tax cut is the first step towards that. China is not encouraging expansion and production in the ferroalloy industry," an official with an Indian ferrochrome producer said.
Other market participants agreed, noting that China had discouraged the export of ferroalloys as early as a decade ago when it lifted export taxes on various ferroalloys because the industry was considered to be adding to the pollution and was energy and resource intensive.
China imposes a 20% export tax on ferrochrome, though it has always been a net importer.
An official with the raw material department of another east China mill said that other than strict environmental standards in the ferrochrome industry, Beijing was also strict when it came to the approval of new projects.
China`s ferrochrome output and production capacity has increased over the years but other than stricter environmental standards, which is also faced by the rest of the ferroalloy sectors and the steel industry, the government was unlikely to introduce more policies to specifically curb expansion of the ferrochrome industry, Liu Yujing, a ferrochrome analyst with Beijing Antaike, said.
"There is no need for more macro policies to check the sector. The market is adjusting on its own," she said.
She noted that while China`s ferrochrome production capacity was around 7.5 million mt/year, only 4.5 million mt/year was estimated to be operating as at December.
The ferrochrome industry was essential to the steel industry, however, sources pointed out.
"The Chinese stainless steel industry is huge. Ferrochrome is still needed in the country," a Shanghai-based trader said.
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