Chinese stainless steel mills are almost exclusively buying spot imported ferro-chrome by negotiating discounts to their monthly tender prices, making an existing trend standard practice in just two months.

This form of negotiation reflects longstanding efforts by Chinese mills to drive purchasing costs lower as they struggle with thin profit margins and tight cash flow.

The mills had already successfully secured much lower prices due to protracted global oversupply of ferro-chrome.

The new system has helped to erode the premium that Chinese ferro-chrome consumers traditionally paid for imported material, which comes mainly from South Africa.

The import price for South African material, which had been relatively stable for years, has recorded sharp drops recently because multiple suppliers are trapped in the new system and have to play along or lose market share, sources said.

“No one buys on spot without looking at it relative to the tender price. It’s a runaway train; one guy started doing it, everyone followed and it just kept dropping, that’s why the price has fallen so fast,” a supplier source told Metal Bulletin.

Metal Bulletin’s import charge chrome 50% Cr index dropped 65 cents to $0.58 per lb cif Shanghai on January 15, days after leading mills Tsingshan and Tisco announced lower tender prices

It was both the lowest price and the steepest weekly drop recorded by the index since its launch in 2012.

‘Mills dominate the market’
“The current ferro-chrome market is a buyer’s market. Mills are dominating the market. I can say none of the local ferro-chrome smelters can make money now; the best situation is not losing money, while most [smelters] are losing money,” a major smelter from Inner Mongolia said.

Securing a discount to their own tender prices guarantees that a mill will not be hit by adverse currency moves or other factors that can leave it paying a higher price than it could secure in a local tender, one overseas supplier explained.

Negotiations for individual sales start with a mill asking the supplier how wide a discount they can grant. The requested discount is typically 100-200 yuan ($15-30) per tonne, but this is starting to widen, sources said.

“The method was started a couple of months ago; buyers who want to buy imported ferro-chrome will use Baosteel or Tsingshan’s tender price for the month, minus 100-200 yuan then convert it to a dollar-based price,” a major trader in China said.

“This is becoming a trend and the discount is expanding now,” the trader added.

A second major trader in China agreed, adding that some mills were asking for discounts of 300 yuan per tonne.

Baosteel’s tender price for this month was 4,960 yuan ($754) per tonne. The dollar-based price with a discount of 200 yuan would be equal to about 55 cents per lb, cif Shanghai, according to Metal Bulletin’s calculations.

“Discounts definitely vary between different parties at different times. It moves with the market. If that market is tighter, you can charge the tender price flat but if there is more supply you have to give a discount,” a third trader said.

The negotiation technique is not necessarily written into contracts as a price discovery formula, but it is in some cases, sources told Metal Bulletin.

Stainless steel mills in China have been slashing their purchase prices for high-carbon ferro-chrome since November, attempting to get some input cost relief after their products’ price reached multi-year lows in late August.

China domestic grade 430 2mm stainless steel cold rolled coil in-warehouse was 6,400-6,500 yuan per tonne last week, having recovered from its lowest levels since 2007 of 6,000-6,100 yuan per tonne touched in August, data from Metal Bulletin’s sister publication Steel First shows.

Rena Gu

Janie Davies
Twitter: @janiedavies_mb