South Africa's chrome output to be constrained for a while, says CRU
Research agency CRU says South African opencast chrome mines will be restarting at reduced capacity and that chrome ore supply will be tighter than the pre-Covid-19 levels for some time.
It notes that physical distancing measures in response to Covid-19 have resulted in disruptions to mining in South Africa, including in chrome production.
The lockdown also resulted in a fall in liquidity throughout the supply chain, owing to logistics and labour restrictions, with most mines unable to mine fresh material and export it.
There is a significant lag between the shipment of existing stocks versus fresh material, which could be substantially delayed as mines slowly ramp up. There is concern in the global market that output from chrome mines will be under pressure in the coming months, especially since nearly one months’ worth of material has been effectively lost owing to the lockdown.
Although higher prices could lead to some small parties, who need cash flow, increasing output, weaker medium-term fundamentals will likely result in production at opencast mines remaining reduced.
CRU expects China's stainless steel production to decrease this year, contributing to a 9% decrease in Chinese ferrochrome demand.
“We are expecting to see continued falls in stainless demand growth. The return to normality will be gradual and physical distancing will continue. The question is to what extent will disruptions to supply balance the decline in demand?”
CRU expects global chrome ore supply to decline by 5% year-on-year, but to recover in 2021, "as demand growth returns".
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