NA FERRO-ALLOYS CONF: Seven Things We Learned At The Chicago Conference

Fastmarkets looks at the key takeaways from the annual Fastmarkets North American Ferro-alloys conference in Chicago on September 25-27.

Slowing economic, steel production growth will weigh on ferro-alloys prices
Ferro-alloys prices will continue to fall going into 2020 because of slowing economic growth and falling steel production, Fastmarkets analyst Amy Bennett told delegates in Chicago last week.

“Although ferro-alloy prices will almost certainly trend lower in 2020, given the weakening economic fundamentals, we do not expect to see prices retreat to 2015-2016 lows, assuming producers respond to declining demand with alloy production cuts as needed,” she said.

In December 2015, the European ferro-vanadium price fell to a low of $13.30-13.80 per kg in-warehouse Rotterdam, compared with $26.70-28 per kg on October 2, according to Fastmarkets historical data.

Similarly, the European price for ferro-molybdenum hit a low of $12.10-12.60 per kg in November 2015. Fastmarkets most recently assessed the price at $26.45-26.70 per kg on October 2.

Downtrend in vanadium to continue amid excess supply
The downtrend in the vanadium market will continue going into 2020 in the absence of any significant production cuts on the horizon, delegates told Fastmarkets on the sidelines of the conference.

“Prices are going down rapidly. There’s not much that can stop the market from falling unless we see significant production cuts,” one delegate said. “It’s easy to find material, everyone’s fighting for inquiries. It’s not an easy thing to sell.”

Instead, producers, including Largo Resources and Bushveld Minerals, are looking to expand their production, another delegate added, amid continuously weakening demand.

The benchmark ferro-vanadium price in Europe has fallen by 61.5% since the start of the year. Fastmarkets’ price assessment for ferro-vanadium basis 78% V min, 1st grade, ddp Western Europe was $26.70-28 per kg on Wednesday October 2, down from $70-72 per kg on January 2.

Similarly, in the United States, the ferro-vanadium 70-80% V in-whs Pittsburgh price is down by 67% from January 3 when it stood at $42-45 per lb compared with Fastmarkets’ latest price assessment at $13.75-15 per lb on September 26.

“Between steel mill production cuts and diversification in raw materials, ferro-vanadium demand is shrinking to a greater degree than any reduction in vanadium supply,” Fastmarkets’ Bennett said.

Silicon slide worries market participants
Silicon prices continue to slide below production costs and, with few remedies in sight, several conference participants wonder how producers can continue operating at existing rates.

European silicon prices are under downward pressure due to very low demand and limited spot trading, combined with competition from cheaper Chinese material entering the market.

The European Union cannot readily impose 100% duty on Chinese silicon as the US did, because the bloc has a cumbersome approval process involving 28 member states and multiple trade associations, one market participant told Fastmarkets.

Meanwhile, a silicon trader said cheap imports to Europe are suppressing prices there enough that European producers are sending silicon to the US. The US is the best market, he said, but prices are falling under pressure from imports.

The US spot silicon price has fallen below $1 per lb on the low end of the range for the first time in three years. Fastmarkets’ monthly price assessment for grade 5-5-3 silicon, ddp US was $0.98-1.03 per lb on September 10, down from $1.01-1.07 per lb on August 9.

The European price for silicon grade 5-5-3 98.5% Si min, in-whs Rotterdam has been stable at €1,500-1,600 ($1,641-1,750) per tonne, since mid-August but is down from €1,780-1,850 per tonne at the start of the year.

Largo bullish on vanadium in batteries
Paulo Misk, the new president and chief executive officer of Toronto-based vanadium producer Largo Resources is upbeat on the potential for vanadium to be used in batteries.

“The potential for VRB [vanadium redox (flow) batteries] to create demand is huge,” he said in a session on the outlook for vanadium.

More than any ferro-alloy Fastmarkets tracks, vanadium has plummeted this year from all-time highs two years ago.

Fastmarkets’ assessment for vanadium pentoxide 98% V2O5 min, in-whs Rotterdam stood at $6.45-7.50 per lb on September 27, unchanged week on week but down by 75.7% from its record high of $28.50-29 per lb in November 2018.

Misk said what makes now the right time for vanadium-based batteries is their potential to store energy in power grids – clean energy from solar and wind power traditionally gets wasted if not immediately consumed.

“Less than 1% of vanadium produced today goes into batteries today. However, in five years’ time it could be five times that,” he said.

Brokers’ role endangered
Traders that only buy and sell metal face extinction, under threat from the internet, producers selling directly to buyers, and metal consumers’ expectations of value-added services, delegates heard during a session on supply chain management.

“The days of being just a broker are gone,” Jordan Kestenbaum, director of Marco International Corp, a New York-based global ferro alloys trader, said. “I can message a guy in China on WhatsApp and in three seconds get the premiums,” he said.

But fellow panelist Charles Robitaille, procurement manager with Bradken – a Kansas City steel foundry – disagreed and said: “Traders definitely have a place: 75% of foundries have less than 100 employees. They don’t have the volume to deal directly with producers.”

But buyers now expect extras, session participants agreed. These include extended payment terms, market insights, and consignment arrangements whereby metal sits at the manufacturer’s facility but the manufacturer only takes ownership at the moment it is ready to use the material.

Robitaille said he is also interested in blockchain technology for its potential to increase transparency in the supply chain.

Largo will sell its V205 directly
As an example of the increasing trend of producers selling directly, Largo Resources said it will start selling its vanadium pentoxide itself once its contract to have Glencore market its V205 expires in April.

“We will do sales in-house and also have some agents,” CEO Misk said.

“Glencore will no longer be our exclusive agent, starting in May,” Misk added. “Our contract expires and we’ve disclosed already that we’re not going to renew it.”

Asked in a session on vanadium if Largo would now do the marketing differently, Misk said, “For sure, we’re not going to do the marketing the same way. We’re going to have quality material next door [to customers] and we’re going to look for long-term contracts.”

Whether those contracts are based on an index will be at the customer’s discretion, Misk said.

“If you’d like a price basis, okay, if you’d like a fixed-price that’s okay, too.”

Stelco acquisition surprises
An uncounted furnace was one of many “amazingly pleasant” surprises for Alan Kestenbaum when his firm bought Stelco from US Steel Corp a couple of years ago, he said.

“We discovered an extra blast furnace that we hadn’t known about,” Kestenbaum, now executive chairman of Ontario-based steelmaker Stelco, said.

Another was how well maintained the facility was. “There are too many examples of distressed-asset situations, where there’s a cheap price, but you get caught in $400 million of capital expenditure, making it not a cheap price,” he said. “We were fortunate that US Steel had invested more than $700 million over 10 years keeping the place modernized.”

Kestenbaum had been asked in the opening session of the conference whether the acquisition of bankrupt Stelco in June 2017 brought any surprises.

He has a track record in corporate turnarounds and remains chairman of Bedrock Industries Group, which acquired Stelco. Earlier in his career Kestenbaum founded Globe Specialty Metals.