Outokumpus planned acquisition of ThyssenKrupps
stainless steel unit and the leading role of stainless producer
Aperam in recent quarterly ferro-chrome pricing talks have
raised questions over who will negotiate prices with
ferro-chrome suppliers Xstrata and Glencore in the future, and
whether the benchmark system itself will last the year.
The European benchmark price for charge and high-carbon
ferro-chrome has traditionally been settled by Xstrata, with
marketing partner Glencore, and ThyssenKrupps stainless
unit Inoxum, which Outokumpu plans to take over this year.
The quarterly settlement for ferro-chrome, which is an
essential raw material for all stainless steel production, is
under growing pressure, though.
Its becoming more and more discredited; all it
needs is one more push, a steel mill source told Metal
Bulletin. If Inoxum and Outokumpu tie up youre
saying the main benchmark setter [Inoxum] cant contribute
to that process and that theyve then contributed to their
own selling price and everyone elses.
Outokumpu is a ferro-chrome producer as well as a stainless
In the most recent negotiations, for prices for contracts for
April-June, Luxembourg-based mill Aperam settled the price
with Xstrata and
Glencore, while ThyssenKrupp remained in negotiations.
The second-quarter price settled up 20 cents from the first
quarter at $1.35 per lb, but discounts are normally applied for
Spot high-carbon ferro-chrome prices are trading at $1.16-1.20
There is no agreement between Xstrata and Aperam that they will
settle the benchmark price in future quarters, though, Metal
The 15-20% discount on the benchmark that individual producers
give their customers on the benchmark is one factor that
undermines the quarterly price, ferro-chrome suppliers and
Uncertainty over the structure of the talks in future quarters
as a result of Outokumpus takeover of Inoxum will also
add to the already substantial argument against having a
benchmark settlement at all, with some saying the latest talks
could have been one of the last rounds.
If the benchmark survives long enough to see Inoxum pass into
Outokumpus hands, it is unlikely that the company could
resume its role as a lead negotiator, sources said.
Outokumpu has a captive supply of ferro-chrome for its
steelmaking needs and sells the rest to consumers, making the
company a net seller of ferro-chrome at the moment.
The company is investing 440 million ($603 million) in an
expansion project that will double its ferro-chrome capacity by
Its Kemi chrome mine produces around 1.3 million tpy of chrome
ore. Its Tornio ferro-chrome plant is expected to produce
530,000 tpy of ferro-chrome when the expansion is complete.
Without the acquisition, this would have given Outokumpu more than 200,000 tonnes of
ferro-chrome to sell
, but after absorbing Inoxum, it will
instead become a net importer.
As both a producer and a consumer, Outokumpu is unlikely to be
considered to be in an appropriate position to lead the
benchmark discussions, market sources said.
It could still theoretically participate in the discussions as
But its presence on both sides of the market, compared with
Inoxums previously clear-cut position as a consumer under
ThyssenKrupps ownership, could further undermine the
vulnerable benchmark system, one market source explained.
By combining Inoxum and Outokumpu you change the dynamic
of the benchmark discussions. Outokumpu has its own chrome ore
mining and ferro-chrome capacity and would have [until the
takeover] been a net seller. So the balance [of ferro-chrome
supply and demand] within the group would be very different to
that within ThyssenKrupp, the source said.
The combined group could do both, but the role it might
play in benchmark setting would be very different to the role
ThyssenKrupp played. Nobody could dispute the role ThyssenKrupp
had in setting the benchmark. So there is the question: who
will play the key role on the buy-side?
One scenario is that Aperam could become a more regular
But debates about the future composition of the benchmark talks
always find their way back to the question over the viability
of the system itself.
I think it is more pertinent to ask: what is the future
of the benchmark? The benchmark is not in place through the
will of the South African ferro-chrome producers, one
ferro-chrome producer source said.
Other market participants see the benefits of the system.
Stainless steel stockists see the benchmark as an established
and transparent pricing mechanism, while mills are able to
obtain chrome units at a discount to the benchmark and then
pass the full benchmark price on to their customers.
But the benchmark is not necessarily irreplaceable to mills,
particularly with its future so uncertain, sources said.
Id rather get rid of the benchmark altogether; we
only want it as a pricing mechanism which could just as easily
switch [to another reference], the stainless mill source