Picture: ISTOCK
Picture: ISTOCK

The short-term outlook for producers of South African chrome and manganese is positive, cementing the country’s role as the biggest supplier of the minerals that are used in Chinese stainless steel manufacturing.

On iron ore, Macquarie analysts said in their Commodities Compendium that the global market would have a cumulative surplus of about 120-million tonnes over the next three years, needing the benchmark iron ore price to fall to the mid-$50s.

Iron ore is dominated in SA by Anglo American’s Kumba Iron Ore and Assmang, a joint venture between African Rainbow Minerals and Assore. At that price, smaller, costlier producers would have to close mines, bringing the market back into balance.

China’s increasingly reliance on seaborne supplies of iron ore as its private domestic mines close, and a rising value in good-quality ore as Chinese steel mills sought better feedstock, prompted Macquarie to increase its 2019 price forecast slightly from the mid-$50s for the next two years.

Macquarie named manganese prices the most volatile during 2017, reaching a 10-year high early in the year before more than halving just a few months later.

The shutdown of Chinese domestic capacity represents a paradigm shift, as it removes a major high-cost, swing supplier in the manganese ore market
Macquarie

Chinese manganese imports shot up 39% in 2017, mainly from SA, where miners responded quickly to demand and higher prices, using the expensive option of trucking manganese ore to harbours from their operations in the Northern Cape to deal with the logistical bottleneck on limited rail capacity.

In Australia meanwhile, two high-cost open-pit mines have been reopened.

While unconfirmed, Macquarie suggested the higher Chinese imports were as a result of the closure of domestic low-grade mines.

"The shutdown of Chinese domestic capacity represents a paradigm shift, as it removes a major high-cost, swing supplier in the manganese ore market," Macquarie said.

"Lower domestic output paves the way for structurally higher imports going forwards; it also means that the onus to balance the market is increasingly on higher-cost, seaborne tonnes — particularly trucked exports from SA."

The chrome and ferrochrome markets were balanced in 2017 after a big deficit in the markets in 2016.

In terms of chrome ore, marginal South African material, which was curtailed when prices fell below $150 a tonne in the second quarter of 2017, came back to the market once prices had risen past the level of $200 a tonne.

Please sign in or register to comment.