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In the first four months of 2023, China produced 1.168 million tonnes of ferro-alloy products, with the volume of the top-10 producing regions accounting for a high concentration of that output, producing 85.55% of the total, according to Wanli Shi, secretary general of the China Ferroalloy Industry Association, during his keynote presentation on Thursday June 15.
The top-10 ferro-alloys production hubs in China are: Inner Mongolia, Ningxia, Guangxi, Guizhou, Shanxi, Shandong, Shaanxi, Qinghai, Hunan and Gansu provinces and six of the top-10 are in the north of the country, with just two accounting for just under half of the top-10 output.
“[The] concentration ratio in China’s ferro-alloys industry is quite high, much higher than steel and other sectors,” Shi said. “And I think the ratio will continue to rise with the cost spread [between] northern China and southern China [set] to expand.”
Inner Mongolia is by far the biggest in terms of market share in the first four months of 2023, with 36.34%, while Ningxia was second on 12.24%.
The northern regions – Inner Mongolia, Ningxia, Shanxi, Shaanxi, Qinghai and Gansu – enjoy cost advantages because they use low-cost coal-fueled electricity, have easier access to coke and have more efficient transport logistics, which are essential for the production of ferro-alloys products, including silico-manganese, ferro-silicon and ferro-chrome.
“Take the production cost of silicon-manganese. In Inner Mongolia, the cost is 6,283 yuan ($881.50) per tonne, while the cost in Guangxi (in southern China) is 7,138 yuan per tonne,” Shi said. “In other words, Inner Mongolian producers can earn a margin of 200-300 yuan per tonne with an ex-works price of 6,500-6,600 yuan per tonne, while Guangxi suffers with losses of 500-600 yuan per tonne.”
With the rapid development of ferro-alloys futures trading, Chinese steelmakers are increasingly using the newly-introduced futures-spot basis pricing pattern to hedge risk, according to Hao Zhu, assistant director of futures and risk management at Nanjing Iron & Steel. Learn more about our risk management solutions.
Zhu said steelmakers can sign long-term contracts with ferro-alloys producers on a futures-spot basis, making it a flexible move for both sides to enable stable prices and secure supplies.
Steelmakers in China tend to purchase raw materials through long-term contracts with ferro-alloys producers based on monthly tender prices, Zhu said. But Nanjing Steel, a private steelmaker based in Jiangsu province, in east China, was now running a pilot program using the pricing pattern in its raw materials procurement process, he added.
In addition to silicon-manganese and ferro-silicon futures contracts being traded on the Zhengzhou Commodity Exchange, a ferro-chrome futures contract was in the research stage at Shanghai Futures Exchange, one delegate said.
“But the launching of a ferro-chrome futures contract will be slow, with several other contracts on the top of the waiting list at the Shanghai Futures Exchange,” the delegate added.
Indonesia is growing into a major producer of stainless steel, with 2022’s output reaching 4.805 million tonnes and making it a key target market for global chrome ore and ferro-chrome suppliers, according to Shanghai Liying International Trade Co’s general manager Junhong Zhang speaking at the event.
“[Chinese stainless steel giant] Tsingshan has around 6 million tonnes of stainless steel capacity in Indonesia, and Delong may have another 2 million tonnes capacity there,” Zhang said, “[so] demand for chrome is increasing.”
In 2022, Indonesia imported 1.6 million tonnes of ferro-chrome, mainly from South Africa, Kazakhstan and India. And Tsingshan has a ferro-chrome capacity of 300,000 tonnes per year in Indonesia, with another 800,000 tonnes per year in capacity currently under construction.
Tsingshan may [bring an] additional 0.4 million tonnes of ferro-chrome capacity into production in the second half of 2023 and it will need less imported ferro-chrome, but more chrome ore
“Tsingshan may [bring an] additional 0.4 million tonnes of ferro-chrome capacity into production in the second half of 2023 and it will need less imported ferro-chrome, but more chrome ore,” Zhang told Fastmarkets. He said that would lead to “a change in global ferro-chrome trade flows.”
Zhang told delegates they should pay close attention to the Indonesian market, which could have a huge impact on global supplies and prices for chrome ore and ferro-chrome.
Ferro-alloys is a highly energy-intensive industry and one of the key sectors attracting the attention of government departments and industry market participants over its progress in terms of its green development.
By 2025, the share of China’s ferro-alloys capacity meeting or surpassing industry energy efficiency standards is expected to reach 30%; unqualified capacity of ferro-silicon and silicon-manganese will be almost certainly be shut down; and the high-carbon ferro-chrome industry’s energy savings and carbon emission cuts will have achieved great progress, according to the National Development & Reform Commission’s March 2022 publication ‘Upgrading Guide of Ferroalloy Industry Energy Saving and Carbon Emission Reduction.’
And in February 2023, the China Metallurgical Industry Planning & Research Institute and China Iron & Steel Association (CISA) announced plans to jointly conduct green certification of the ferro-alloys industry to recognize the construction of green manufacturing systems in China. Learn more about developments in green steel production.
“Carbon emissions reductions have been gradually [introduced] in the steel industry,” Yong Wu, from CISA’s Raw Materials department, told delegates at the conference. “[And the] ferro-alloys industry should be seriously taking green development into consideration and make preparations for change.”
Faced with the pressure of slow economic growth globally, China’s ferro-silicon market has displayed weak momentum since the beginning of 2023, with decreasing supplies and demand between January and May 2023.
“Total ferro-silicon production volumes from January to May 2023 amounted to 2,331,400 tonnes, down by 11.83% compared with the same period last year,” according to Ferroalloy Industry Association general secretary Shi.
He said the main demand for ferro-silicon was from steel mills, but they were now moving to a greener, low-carbon development path and have reduced crude steel production year on year.
Another major source of demand for ferro-silicon is for the production of magnesium, which has been heavily affected by the shutdown of semi-coke furnaces, which resulted in demand for ferro-silicon to produce magnesium being cut short.
“To produce one tonne of magnesium requires 1.05 tonnes of ferro-silicon,” Shi said. “The total ferro-silicon demand [to produce] magnesium from January to May 2023 was 372,700 tonnes, down by 11.26% compared with the same period in 2022,” he added.
According to data from Chinese Customs, total ferro-silicon exports amounted to 146,500 tonnes in January-May, down by 44.61% compared with the same period last year.
Delegates from the ferro-alloys industry told Fastmarkets on the sidelines of the conference that they do not expect the weak momentum to change this year, given the decline in ferro-silicon production volumes, dipping steel output and the sluggish magnesium market.