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“It’s a big step because it’s been such an institution for ferro-chrome sales into Europe,” a market participant said.
Whether it was known as the EQB, the EUBM, the EBM, the BM or the bmark, it was the pricing mechanism the ferro-chrome industry loved to hate.
Throughout its more than two-decade history, it was rarely smooth sailing, and countless claims emerged along the way that its demise was imminent.
Loved or loathed, however, it must always be looked upon as a pivotal part of the industry’s history, even if, in later years, its relevance diminished.
Fastmarkets looks back at the lifecycle of a ferro-chrome institution.
At the time of its discontinuation, the ferro-chrome lumpy Cr charge quarterly, basis 52% Cr (and high carbon), delivered Europe (rounded to the closest 2 decimal places), as it was latterly known, had been running for more than two decades.
Its most recent negotiating partners were Glencore on the sell side and Aperam on the buy side, with others including Samancor and ThyssenKrupp acting as negotiators historically. Merafe Resources, a leading producer of ferro-chrome through its joint venture with Glencore in South Africa, made the announcement of the new benchmark every quarter.
Towards the end of its run, not only had its relevance to the market been eroded, but its relationship to spot prices had dramatically shifted.
There was a clear point at which the benchmark’s relationship with European high carbon ferro-chrome spot prices changed completely – largely because of a seismic shift in the geopolitical backdrop – and arguably, this marked the true beginning of the end.
At the beginning of 2022, in the aftermath of Russia’s invasion of Ukraine, along with the incipient European energy crisis, the decoupling of the benchmark from the spot high carbon ferro-chrome price in Europe – historically consistently below the benchmark – became inescapable.
At that time, there was a rapid and clear spot price spike, reflected in Fastmarkets’ assessment of the price of ferro-chrome high carbon 6-8.5% C, basis 65-70% Cr, max 1.5% Si, delivered Europe, which saw a 2022 peak of $3.19-3.58 per lb Cr, set in May that year.
The benchmark at the time, on the other hand, was $2.16 per lb Cr.
Through 2021 – the oldest data available showing the correlation between the benchmark and other European high carbon ferro-chrome prices, as Fastmarkets separated its ferro-chrome, high carbon, 6-8.5% C, basis 60-70% Cr price assessment into two distinct quotes around that time – the benchmark and the higher grade (65-70% Cr) high carbon ferro-chrome price had followed a reasonably similar trajectory.
But after the invasion of Ukraine, coupled with rising production costs associated with spiking European energy prices, while higher grade high carbon prices surged, both the benchmark and Fastmarkets’ price assessment for ferro-chrome high carbon 6-8.5% C, basis 60-64.9% Cr, max 3% Si, cif Europe saw far less of a direct effect.
In turn, as shown in the chart, the benchmark began to show more of a relationship with the lower grade (60-64.9% Cr) high carbon price.
At the same time, Fastmarkets’ price assessment for ferro-chrome 50% Cr import, cif main Chinese ports, contained Cr continued to follow a similar path, albeit at a lower level than the benchmark or the lower grade European high carbon price, but nonetheless highlighting a close relationship with the market in China.
Indeed, much of South Africa’s charge chrome output is consumed by China, outstripping usage in Europe, although even China’s imported charge chrome market has faced headwinds, with competition from growing domestic supply.
Across its long history, the benchmark’s story has taken numerous twists and turns.
In 2008, with the emergence of a power supply crisis in South Africa, along with growing demand from China, talk quickly turned to substantial increases in quarterly contract prices, which had already hit record highs.
By the end of that year, however, as the global financial crisis tightened its grip and stainless markets slumped, there were reports of widespread ferro-chrome production cuts.
And when the delayed first quarter settlement for 2009 was announced, it came in at $0.79 per lb Cr, some 57% lower than its previous level and its lowest level since April 2007, before dropping to $0.69 per lb Cr the following quarter.
The settlement had rebounded by the second quarter of 2010, but doubts over its relevance had already emerged, and there were predictions by 2011 that it could be coming to an end no more than a year later.
But the end of 2012 came and went, and the system was still in place, with no signs that the dire predictions of its imminent demise were about to come true.
There have also been some major milestones along the way.
For example, a key change took place in the second quarter of 2012, when European stainless steel producer Aperam stepped in as the buy-side negotiator, temporarily replacing ThyssenKrupp, which was in negotiations to sell its Inoxum stainless steel unit to Finland-headquartered stainless steel and ferro-chrome producer Outokumpu.
ThyssenKrupp resumed its role for the subsequent three quarters, but Aperam was back in the second quarter of 2013, in the first round of talks after Inoxum was acquired.
Market participants had predicted this would be the case, pointing out that the deal would have turned the buy-side negotiator into both a producer and consumer of ferro-chrome, which the market would not have found acceptable.
By 2015, questions were being asked again about the “conspicuous” gap between the benchmark and spot ferro-chrome prices, with references to long-running criticisms over its lack of parity with the “real market.”
But that relationship had yet to end, and at the end of 2016, when the benchmark saw a 50% increase for the settlement covering the first quarter of 2017, spot prices for high carbon ferro-chrome in Europe began to see a major uptick mere hours later.
Around that time, Fastmarkets also introduced the ferro-chrome lumpy Cr benchmark indicator, charge basis 52% (and high carbon), Europe, with the aim of capturing the relationship between spot prices and the benchmark settlement, as a way to provide an estimate of what the benchmark would have been on a weekly basis.
The indicator will continue to be published after the discontinuation of the benchmark.
And in 2020, the shadow of the Covid-19 pandemic fell across the world, leading to widespread lockdowns, including in South Africa, pushing the settlement of the second quarter benchmark for that year back to late April.
The benchmark and the higher grade high carbon price converged again to some extent in July of 2023, at which time the benchmark had been set at $1.51 per lb Cr, and the mid-point of the higher grade high carbon price range stood at $1.77 per lb Cr.
But the two never really came together again, and while the correlation with the lower grade high carbon price persisted, it seemed the historical hand-in-glove relationship had ended.
Fastmarkets’ own coverage refers to published quarterly European contract prices for charge chrome as far back as 1996, with some indication the system started even before that.
That year also marked the earliest instance available in Fastmarkets’ archive of rumors about the machinations surrounding the settlement of the contracts, at a time when negotiations were a lot less structured, with multiple producers and multiple steel mills involved.
In its early days, there was a steady supply of market chatter around the give-and-take that would be required in its settlement, with wranglings between South African producers and European buyers widely discussed.
Settlements were confirmed by word of mouth, and any surprises could be met with some rather extreme reactions, and even claims of possible production cuts if levels dropped too far.
The first reference to a “benchmark” was in 1998, and by then, the system was well established, with the importance of the settlement of the quarterly contract price firmly entrenched in the market’s consciousness.
Since then, the system has metamorphosed multiple times, and Merafe Resources was making the formal announcement of the settlement level as far back as the third quarter of 2008.
Fast forward to the present day, however, and even after it has been discontinued, its influence continues to be felt, as market participants prepare for a future without it, and thoughts turn to what could fill the breach.
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