CRU: What do South African Restarts Mean for Chrome Ore Prices

CRU: What do South African Restarts Mean for Chrome Ore Prices

PR Newswire

LONDON, May 12, 2020

LONDON, May 12, 2020 /PRNewswire/ -- In a previous CRU Insight, we discussed the effect that the South African lockdown, announced 26 March, would have on the chromium market. Since then the price of both UG2 and 44% concentrate has increased in line with our expectations.

What do South African restarts mean for chrome ore prices

From the 16 April, an amendment to the Disaster Management Act allowed a ramp up of production at mines and smelters to 50%. By 23 April, the movement to a level 4 exit plan allowed open cast mines to move to 100% production on 1 May. Below we detail what this will mean for chrome ore prices in the short to medium term.

Disruptions will cause 2020 supply to fall

Social distancing measures in response to COVID-19 has seen disruptions to mining in South Africa. Even before COVID-19, there were some price-related reductions mine curtailments, in particular at UG conventional miners.

UG2 has seen significant price rises but CRU understands that this is mainly for sales of existing port or mine stocks. The lockdown period has caused a fall in liquidity through the supply chain due to logistical and labour restrictions, meaning many mines are unable to mine fresh material and ship it. There is a significant lag between shipment of existing stocks versus fresh material, which could be substantially delayed as mines slowly ramp up.

This helps explain the change in mentality of Chinese buyers. Despite circa 4 million tonnes of chrome ore stocks in China and reduced downstream demand globally for stainless steel, worries remain that output from UG mines will be under pressure in the coming months. Especially since nearly 1 months' worth of material has been effectively lost due to the lockdown.

CRU believe some South African open cast mines will be restarting at reduced capacity and chrome ore supply will be tighter than the pre COVID-19 levels. Although higher prices could lead to some small parties, who need cash flow, increasing output. However, weaker medium-term fundamentals could mean production at open cast mines remains reduced.

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