JUNIOR MINING — Oversupply and low prices sting chromium

It was not a great year for the chromium industry in 1992, which was characterized by oversupply and declining prices for chromite ore and ferrochromium. The price of high-carbon ferrochromium in the U.S. dropped to its lowest year-end price in more than decade.

In 1989-1990, shortage of supply owing to strong stainless steel demand resulted in increased prices and profits for producers. Producers used their profits to expand production capacity to meet demand. Strong demand and high prices encouraged new producers to enter the market. Even before all of the new projects came into production, producers were plagued by excess supply and prices declined, a condition that continued throughout 1992. World stainless steel production increased by about 0.9% from 1991 to 1992, not enough to significantly improve demand for ferrochromium. U.S. stainless steel production increased from 1.7 million tonnes in 1991 to 1.8 tonnes in 1992, according to the American Iron and Steel Institute. Japanese stainless steel production decreased from 3.4 tonnes in 1991 to 3.1 tonnes in 1992, according to CRU Monitor. European stainless steel production increased from 4.5 tonnes in 1991 to 4.7 tonnes in 1992, according to CRU Monitor. World stainless steel production, including that from countries other than those above, increased from about 10.8 tonnes in 1991 to about 11 tonnes in 1992, according to CRU Monitor.

The breakup of the Soviet Union in 1991 and formation of the Commonwealth of Independent States (CIS) began the process of economic integration of those states into Western markets. The change of economic practice in the former Soviet States disrupted production resulting in declining demand for chromium material within the CIS.

Economic pressure for foreign exchange encouraged the CIS producers (chromite ore from Kazakhstan; ferrochromium from Kazakhstan, Russia, and Ukraine) to sell chromium materials in western markets where prices and demand were better. The lack of a cost-based price structure in the CIS and poor economic conditions resulted in low-priced CIS chromium materials moving into Western markets in 1992. Thus, CIS chromium materials entered Western markets at a time of over supply, exacerbating the market conditions.

Anti-dumping actions were taken in the European Community and Brazil against CIS material. War in the Balkans did not appear to stem supply of chromium material from that region. Producers in that area suffering shortages of material and electrical energy supply sold from stocks.

The price of high-carbon ferrochromium in the U.S. dropped to about US35 cents per lb. at year-end, the lowest year-end price since about 1978, according to Metals Week. (The FOB value of U.S. imported ferrochromium was about US$976 per ton, the lowest value since 1987 when US$893 per ton was reported.)

The lowest cost of production for major producers was estimated to be about US40 cents per lb. in 1991. (Ferrochromium producers must be losing money but continuing to operate in order to maintain cash flow.)

It can only be a matter of time before producers without cash reserves adequate to carry them through this period of low prices are forced out of the business. Major producers have temporarily shut down furnaces, and two producers have exited the business. (Hellenic Ferroalloys of Greece was closed and put up for sale and Chromeurope of France entered court protection and was sold to Metallgesellschaft and converted from ferrochromium production to dust recycling.)

— From the Mineral Industry Surveys of the U.S. Bureau of Mines, Washington, D.C.