SHANGHAI A steep fall in Chinese ferrochrome prices, attributed to weak demand from the stainless steel sector and firm ore prices, is pushing traders out of the market or forcing them to change their business models, market participants told AMM sister publication Metal Bulletin.
"This year the market is very weak. The only way I do business is by finding buyers first, then finding the cargoes to sell to them," one ferrochrome trader from Shandong province said.
Another major trader in Ningbo echoed the sentiment, saying that the majority of their transactions this year were based on finding buyers first.
"There is no space for them (traders). They are quitting and there is no margin at all because the price is low," another market participant said.
In a strong market, traders make bulk ferrochrome purchases ahead of finding buyers, as they are confident of selling material. However, low prices have dented the mood this year.
"(The ferrochrome) price is the key problem. It rose in the beginning of the year but has been in decline since," the Ningbo trader added.
The spot price of high-carbon ferrochrome in China was at 6,900 to 7,000 yuan ($1,122 to $1,138) per tonne Sept. 20, down from this years high of 7,800 to 7,900 yuan per tonne on Jan. 25.
"This is the worst year (for ferrochrome) since 2008. Last year, traders did not do business if profits were less than 200 yuan per tonne. Now, the general margin is only 50 yuan per tonne," the Shandong trader added.
In addition to the weakness of stainless steel market and macroeconomic factors, firm price of chrome ore and rising freight costs are also resulting in dwindling margins for traders, sources said.
"Every month the price (of ferrochrome) is lower. I know a lot (of participants) are quitting ferrochrome trading but still trading chrome ore," one source added. "Some chrome ore buyers are also trading and they have an advantage over the traders (as buyers may be better aware of price direction)."
Ferrochrome traders are also being forced to adapt their role in the weak market. "Now nobody can bet on the market, which means more back-to-back trade in order to reduce the risks," the Ningbo trader added.
A version of this article was first published in AMM sister publication Metal Bulletin.