Markets | Alloys

Chrome

Robust market fundamentals supported strong ferrochrome base prices throughout the year, leading to record sales for Xstrata Alloys in 2007. The average European benchmark price for 2007 of 89.25¢ per pound was 25% higher than in the previous year.

The first half of 2007 was characterised by strong growth in stainless steel production, in particular in Asia, driven by Chinese stainless steel melt production growth of over 20% compared to the same period in 2006. High nickel prices in the first half of 2007 resulted in numerous stainless producers increasing production of ferritic grade stainless steel production, which uses a higher proportion of virgin chrome units, than nickel-bearing austenitic grade.

The second half of the year saw stainless producers in Europe and America cutting production and delaying the purchase of nickel in response to declining nickel prices. These production cuts, following a strong first half, resulted in stainless steel melt production remaining at a similar level to 2006. Despite these production cutbacks, the switch to ferritic grade stainless steel production maintained robust demand for ferrochrome through the year.

Stronger demand and low inventory levels has prompted ferrochrome producers to restart all available idled capacity. China’s increasing significance as a producer of ferrochrome was reflected in a further 22% increase in production to 1.2 million tonnes in 2007. Despite this increased production, China remains a net importer of ferrochrome.

Outlook

The outlook for ferrochrome prices in 2008 remains positive. Stainless melt is forecast to increase by over 10% to 32 million tonnes in 2008. While stainless steel production is set to slow in the first quarter of 2008 due to production cuts in China, Chinese production is expected to recover during the course of the year, increasing by approximately 12% over 2007 levels. After a period of destocking, demand for stainless steel in Europe and America has started to recover in the first quarter of 2008, albeit at a slower rate.

Ferrochrome demand is accordingly forecast to increase by approximately 8.5% in 2008, due to strong stainless melt production and stainless producers continuing to produce a higher ratio of ferritic grades than the historical average.

Supply-side constraints on South African producers as a result of rolling power outages are expected to result in a supply deficit for the first half of the year.

As a result, record contract prices for ferrochrome have been negotiated in the first quarter of 2008 with the European benchmark price set at 121¢ per pound.

Vanadium

Demand for vanadium remained robust in 2007, driven by continued growth in the production of crude steel, primarily in China.

Vanadium supply increased in response to strong demand with Chinese production from vanadium-bearing slag accounting for the majority of new vanadium units. Despite this, production problems at a number of producers have resulted in market equilibrium.

Although the average quoted price for ferrovanadium in 2007 of $37.17 per kilogram vanadium was approximately 3% lower compared to the previous year, prices remain significantly in excess of historical averages.

Outlook

Supply disruptions in China and South Africa in the first quarter of 2008 has seen ferrovanadium prices rise above $80 per kilogram, a record price last achieved in June 2005. Steady demand and the imposition of export taxes in China will keep the market relatively tight in 2008.

Platinum Group Metals (PGM)

Continued supply disruptions as a result of safety and operational issues, industrial action and lower mine recoveries from South African PGM producers contributed to a market deficit in 2007. In response the prices of all PGMs increased year on year with platinum, palladium and rhodium prices ending the year strongly, $1,544, $370 and $6,850 per ounce respectively.

Strong PGM demand in 2007 continued to be underpinned by robust growth in autocatalyst demand. Platinum demand rose by approximately 3% to 7.8 million ounces in 2007. Palladium demand also grew year on year by 4% to 7.5 million ounces in 2007 spurred by platinum substitution in gasoline vehicles and the jewellery sector. The rhodium market is about 10% of the size of the platinum market with almost 90% of demand driven by its application in platinum and palladium in autocatalysts to reduce the emissions of nitrogen oxides.

Outlook

Supply-side disruptions to South African PGM producers continued in the first quarter of 2008, exacerbated by adverse weather conditions and rolling power outages, resulting in a complete temporary shutdown of PGM mining operations. In response, platinum and rhodium prices have reached record highs passing $2,100 and $8,000 per ounce respectively.

Demand is expected to remain strong, driven by tightening emissions legislation and a rising acceptance of diesel technology by automobile manufacturers in the USA and Japan. The market is therefore expected to remain in relative deficit through 2008 with PGM prices breaking new records.