As LME Week nears, Fastmarkets looks at the impact of four currencies and their interactions over recent months.

Rand movements hit chromium, manganese markets

Manganese and chrome markets both have exposure to the volatile South African rand because South Africa is a key production hub for these materials.

In theory, when a commodity producer’s home currency weakens against the dollar, they earn more in their home currency when they sell in dollar-denominated markets. But there are exceptions, such as when input costs are paid in dollars.

In the non-metallurgical chromite market, sources said in September that rising input costs had been exacerbated by the weakness of the rand against the dollar, with increases in costs in rand terms outpacing increases in sales prices in dollar terms.

But in the metallurgical market, where consistently high prices allow greater margins, the effect of diesel and trucking costs is less pronounced, a chrome ore trader told Fastmarkets, meaning fluctuations in the rand also have less of an effect.

Rand movements also have an influence on trucking, with weakness potentially exacerbating rising diesel prices, since the oil price is denominated in dollars.

“If the market [for manganese ore] was at [higher prices] and the rand was at 19 to the US dollar, then yes, producers would be able to move more by road and still be profitable compared to the current [lower prices] and the same exchange rate,” a manganese producer told Fastmarkets.

On the other hand, when the rand was stronger during July this year, it reduced the margin between trucking costs and product prices when the sales price was already low.

While manganese is more commonly moved by less expensive rail transport on pre-agreed contracts, rand fluctuations and their impact on margins can be a factor in whether miners opt to use road transport, and such decisions affect overall export volumes.

In a market like ferro-chrome where material is often moved by truck and profit margins are also small amid lower product prices, rand fluctuations can have even more impact.

“There’s so much cost pressure that 19 [rand to the dollar] is now the new normal. It’s not giving producers respite; it’s not allowing them to increase their profit. It’s a safety net, but just a tiny bit,” a ferro-chrome trader told Fastmarkets.

“If [chrome ore is at high prices], alloys are not making money, even with the rand at 19.20. We’re waiting for more improvement on the alloy price.”

Tied into this is the ongoing issue of loadshedding – controlled power outages – in South Africa, leading to producers increasing reliance on diesel-powered backup generators, which become less economical to run when the diesel price rises, and if the rand weakens.

“A weaker rand is beneficial for producers, but on the other hand, it results in higher costs [such as diesel]. Coupled with loadshedding, it makes production more costly and complicated,” a chrome ore trader said.

The rand has been so volatile recently that it has been difficult to make longer-term decisions, sources told Fastmarkets.

“Diesel prices went up drastically [in September and October]. Exchange rate movements [could] have alleviated some of the increase,” the manganese ore producer said.

“However, our long-term forecast on the USD/ZAR exchange rate [had] not yet been revised given the constant changes, so the weakening would assist producers, but I don’t think many producers would have implemented too many changes in only one week of rand weakness.”

According to currency exchange website Oanda.com, there were 18.78 rand to the dollar as of September 1, weakening to 19.21 as of September 7, before strengthening to 18.75 as of September 24. As of October 6, the value was 19.45 rand to the dollar.

Yuan movements create buyer caution

Fluctuations in the yuan against the dollar have also affected both manganese and chrome markets, since large volumes of these materials are sold into China.

Seaborne manganese ore and chrome ore buyers in China, for example, would typically benefit from a stronger yuan, since this would decrease import costs in terms of the conversion value, while a weaker yuan would drive their costs up.

The chrome ore market is particularly exposed to the yuan today, sources pointed out, saying buyers face risk and uncertainty because their costs are unknown until they fix their exchange rate conversions.

“In periods where there’s a lot of volatility in the yuan, particularly when it’s weakening, it creates an exchange rate risk for buyers. Let’s say you buy material at [a given price in dollars] but you haven’t fixed your foreign exchange conversion to yuan – until you fix that exchange rate, you have an unknown cost in the domestic Chinese currency,” the chrome ore trader said.

Alongside this, in China’s portside spot market, where port traders sell in yuan, if the chrome ore price stays flat in dollars but the yuan weakens, they will increase their offer price in yuan to compensate, and vice versa.

“Right now, we’re in a situation where there’s so little port stock that everyone has to buy from the forward market anyway and that’s what’s keeping the [chrome ore] price so high. As a result of that, everyone is focused on the exchange rate,” the first chrome ore trader said.

In the manganese market, during September, the depreciation of the yuan also had a direct effect on seaborne prices, pulling them down amid buyside concern over increased import costs.

A Chinese manganese ore trader said at the time that the exchange rate movements had led to dwindling profit margins following purchases of Gabonese ore.

Fastmarkets’ weekly calculation of its chrome ore South Africa UG2/MG concentrates index, cif China was at $303 per tonne on Tuesday October 3, close to the $305 per tonne high for the year to date, set in May.

As of Friday October 6, Fastmarkets’ weekly calculation of its manganese ore index, 37% Mn, cif Tianjin, was at $3.60 per dry metric ton unit, versus a high for 2023 so far of $4.59 per dmtu set in February, and the weekly calculation of its manganese ore index, 44% Mn, cif Tianjin was at $4.29 per dmtu, compared with a year-to-date high of $6.14 per dmtu in February.

According to Oanda.com, there were 7.20 yuan to the dollar as of October 6, compared with 7.34 yuan to the dollar on September 6.

Lira fluctuations affect Turkish flat steel prices

The lira has steadily weakened since gaining some strength against the dollar in the immediate aftermath of the announcement of a major rate hike in August from the country’s central bank.

The lira strengthened to 26.31 lira to the dollar on August 26, versus 27.20 lira to the dollar on August 23, the day before the rate hike announcement.

As of October 6, there were 27.56 lira to the dollar, compared with 18.68 lira at the start of 2023.

In July and August, the weakness of the Turkish currency had a dampening effect on demand for domestic flat steel in the country, Fastmarkets reported.

Because flat steel is traded in dollars in Turkey, buyers could not forecast how much they would pay when they received the product about two months after placing an order, a steel service center source said.

“[If] you order about 10,000 tonnes of steel, you need to pay about 200 million lira [and] most companies do not have such [a big] credit limit. In addition, the risk of steel prices decreasing significantly, or the Turkish lira losing value [again, are] always there. As a result, we have reduced the tonnages we order to reduce the risk,” the service center source said at the time.

Also in August, there were rises for domestic rebar and wire rod prices as a result of the weakness of the lira against the dollar.

Turkish mills mostly buy raw materials in US dollars before selling finished steel products to the domestic market in the local currency, meaning a weaker lira may prompt an increase in product prices.

Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar) domestic, exw Turkey was 19,200-19,700 lira per tonne on August 24, but has since come down slightly, standing at 18,900-19,650 lira per tonne on October 5.

Egypt faces weak pound, lack of foreign currency

Protracted weakness in the Egyptian pound has loomed over the country’s steel industry throughout 2023, causing producers to increase prices for products, including rebar, while they shoulder rising costs for raw materials priced in dollars.

The Egyptian pound was trading at E£30.77 to the dollar on October 6, according to Oanda.com, compared with E£27.67 to the dollar in January and E£24.69 to the dollar in late December 2022.

In the imported billet market in particular, deals have been scarce in Egypt in recent days since buyers have also been constrained by a lack of foreign currency, which Egyptian steelmakers need to pay for raw materials imports.

Egypt had record rebar consumption for 2023 so far in August, but demand for both rebar and billet products has been comparatively low year on year, with buyers choosing local billet over imports because of the struggle to obtain the foreign currencies needed to pay for overseas billet.

Since international trade sanctions were introduced following Russia’s invasion of Ukraine in February 2022, Egypt remains one of the few countries without restrictions on Russian steel billet imports, but deals have been scarce because of Egypt’s shortage of foreign currencies.

In addition, after announcing plans to impose export duties on steel from October 1, Russian mills moved to raise offer prices, but the Egyptian market would not accept the higher levels because of the shortage.

As a result, Fastmarkets’ weekly price assessment for steel billet import, cfr main port Egypt was $515-520 per tonne on September 28, down 2.36% from $520-540 per tonne on September 21, although the price had widened slightly as of the most recent assessment on October 5, to $510-530 per tonne.

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But the increase in sales prices has not been enough to offset rises in production costs, sources reported during the assessment period.

Diesel prices rose substantially in South Africa, the key production hub for chromite. The South African Department of Mineral Resources and Energy announced increases to both petrol and diesel prices on September 6, with rises for diesel between 2.76 rand and 2.84 rand per liter.

The dried and bagged market has been particularly affected because diesel makes up a greater part of the cost of production than for wet bulk, sources told Fastmarkets. Usage of diesel has also increased due to producers resorting to backup generators while high levels of loadshedding persist in South Africa.

“Diesel prices had a massive increase in September, and we expect further increases in October,” a seller in South Africa said.

“Our drying costs have increased severely as we are running for [long periods] on generators, which are drinking diesel at alarming rates,” the seller added.

“Drying costs are not competitive,” a second seller in South Africa said. “At the end of the day, [I think] the market will have to pay [more], otherwise there’s no incentive for [people] to do dried and bagged. If they’re getting [similar] prices for wet bulk, why go through the hassle of drying and bagging?” they added.

While diesel costs undoubtedly also affect the cost of transporting other types of chrome ore to port and from port to their destination, diesel is a big component of the cost for drying kilns, further contributing to the input cost rises for dried and bagged material, a chrome ore trader in Europe explained.

“The drying kilns are basically run using diesel, or paraffin, and that’s linked to oil prices. Also, right now, there are drying plants that are connected to the grid but don’t have backup generators, so loadshedding causes interruptions and fixed costs go up,” he said.

For those that do have generators, the rising cost of diesel means relying on them rapidly becomes very expensive, he added.

The hike in costs has also been exacerbated by the weakness of the rand against the dollar. The exchange rate was 18.96 rand to the dollar on Wednesday, compared with 17.59 rand at the end of July, according to currency exchange website Oanda.com. This means the rise in costs in rand terms has outpaced the increase in sales prices in dollar terms up to now, sources said.

“The rand has depreciated against the US dollar, so that does increases costs, especially diesel. This also impacts inland logistics costs,” a third seller in South Africa said.

There are additional costs involved in transporting material because it must be moved from the mine to the drying facility and then potentially to a warehouse before it is taken to the port, the trader in Europe said.

“Overall, the transport element of the cost for dried and bagged is [higher] than for metallurgical grade. You’re trucking it more than once,” he said.

“The cost difference [of dried and begged compared to] wet bulk is ballooning. A lot of producers of dried and bagged are under a lot more cost pressure,” he added.

There may also be some upside support to chromite prices from supply tightness at ports, according to a trader in China, but this also may be stymied by currency movements in the Asian country.

“The chromite price is mainly supported by low port inventory, but the fluctuation of the Chinese yuan [exchange rate] against the US dollar makes [trading] quite difficult,” the trader in China said.

There has been a similar effect in the metallurgical market in recent weeks, with buyers reportedly hesitating amid currency fluctuations, with the possibility that the cost to import could be affected by any further weakening of the yuan against the dollar — especially because UG2/MG chrome ore prices have risen in dollar terms.

The exchange rate was 7.29 yuan to the dollar on Wednesday, according to Oanda.com, compared with 7.15 yuan at the end of July.

Wet bulk prices hold steady in quiet spot market

Meanwhile, both foundry and chemical wet bulk prices held steady during the assessment period amid generally quiet spot conditions. Buy-side sources in the chemical and foundry grade markets were less bullish than their counterparts in metallurgical grade markets, however.

Fastmarkets’ fortnightly price assessment for chromite, chemical, 46% Cr2O3 min, wet bulk, fob South Africa held at $310-330 per tonne on Tuesday, after rising in the previous two assessments.

And the fortnightly assessment for chromite, foundry, 46% Cr2O3 min, wet bulk, fob South Africa was also stable at $320-370 per tonne, having also increased in the previous two quotations.

“The trend of chemical grade chromite [pricing] is following the price of metallurgical grade chrome ore, which is generally on the rise. But the truth is, the demand for chemical grade chromite is [flat], almost nothing new in most of 2023,” a buyer in China said.

“I haven’t seen prices coming off, but demand has been weaker, so there could be a bit of pressure coming in these markets,” the second seller in South Africa added.

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Seaborne

Both higher-grade and lower-grade manganese ore seaborne indices fell after a sharp depreciation of China’s currency against the US dollar and with a possible increment of port inventories expected at the end of September, Fastmarkets heard.

Fastmarkets’ manganese ore index, 44% Mn, cif Tianjin was calculated at $4.33 per dry metric tonne unit (dmtu) on Friday, a fall of 3 cents from $4.36 per dmtu one week prior.

Buyside contacts expressed concerns about increased import costs after the yuan devalued sharply against the dollar.

One Chinese manganese ore trader said the exchange rate movements had led to dwindling profit margins following purchases of Gabonese ore.

The exchange rate was 7.34 yuan to $1 on September 11, compared with 7.20 yuan to $1 on September 4, with the yuan depreciating by 2% in one week, according to Oanda.com.

The expected arrivals of huge volumes of Gabonese ore at the end of September may add to supply pressures, industry participants said.

Fastmarkets’ weekly manganese ore index 37% Mn, cif Tianjin was calculated at $3.54 per dmtu on Friday, a fall of 2 cents from $3.56 per dmtu one week prior.

Meanwhile, the depreciation of the South African rand mitigated the impact of “drastic” diesel price rises which have added to trucking costs in South Africa, a producer source told Fastmarkets.

But the source added that producers may wait to implement changes to trucking rates based on the weaker rand, due to the volatility of exchange rate movements in recent weeks.

The rand was valued at 19.20 rand to $1 on Friday, depreciating by 2.13% from 18.80 rand to $1 a week earlier.

Combined port inventories of manganese ore at Qinzhou and Tianjin ports stood at 5.48-5.75 million tonnes on Monday September 11, compared with 5.60-5.87 million tonnes on previous Monday, according to Fastmarkets’ data collection.

“The port inventories remain high. Even the news of manganese ore supplier WMA’s plan to cut exports from October work little in pushing up market confidence,” a second Chinese manganese ore trader said.

Freight rates increased during the week due to several factors, including a drought in the Panama Canal and high demand for grains shipments from Brazil, tightening the global supply of vessels.

Fastmarkets’ manganese ore index, 37% Mn, fob Port Elizabeth was calculated at $2.74 per dmtu on Friday, a week-on-week drop of 5 cents from $2.79 per dmtu.

Portside

Portside prices of manganese ore in China rose slightly on Friday on improved sentiment among buyers and sellers, after Chinese stimulus policies for the property market were released and smelters restocked for the Golden Week holiday in the nation (September 29-October 6).

Fastmarkets’ calculation of the manganese ore port index, base 44% Mn, range 42-48%, fot Tianjin China was 38.50 yuan ($5.33) per dmtu on Friday, up by 0.10 yuan from 38.40 yuan per dmtu on September 1.

Fastmarkets’ weekly low-grade manganese ore port index, base 37% Mn, range 35-39%, fot Tianjin China stood at 31.00 yuan per dmtu on the same day, up by 0.20 yuan from 30.80 yuan per dmtu previously.

Beijing and Shanghai lowered the downpayment ratios to 35% for first house buyers in the cities on September 1, following the same policies announced in Shenzhen and Guangzhou on August 30.

“The release of such policy fired liquidity in [China’s] property market, which drove up futures markets of commodities and enhanced market confidence,” a Chinese manganese ore trader source at Tianjin port told Fastmarkets.

Sellers of manganese ore at ports raised the prices by 0.20 yuan per dmtu as a result, the trader source added.

Manganese alloy smelters broadly accepted the rise due to their restocking needs for the upcoming long holiday.

“It is time for smelters to replenish,” another port seller source said. “I can feel the deals increase and port inventories decrease a little bit.”

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The Central Bank of Turkey halted the decline in the Turkish lira by raising the interest rate to 25% from 17.5% from August 24. And on Tuesday, $1 was equivalent to 26.7369 lira, according to Oanda.com, compared with $1 to 19.441 lira on May 1.

“[If] you order about 10,000 tonnes of steel, you need to pay about 200 million lira [and] most companies do not have such [a big] credit limit. In addition, the risk of steel prices decreasing significantly or the Turkish lira losing value [again, are] always there. As a result, we have reduced the tonnages we order to reduce the risk,” the service center source said.

However, the main reason for lower-tonnage orders is that demand has been negatively affected, with the current lack of demand worse in the domestic market than for exports.

Turkey is not alone in suffering from a lack of dollars, however, with Egypt also recently suffering from currency issues. The shortage of foreign currency in the country has been inhibiting steelmakers from increasing their exports to have sufficient funds to import raw materials and semi-finished products.

“The regulations in Egypt require companies to have [sufficient] foreign currency to open letters of credit. Reduced imports and reduced foreign currency collection naturally results in [lower supplies of] raw materials and semi-finished products,” according to Ugur Dalbeler, chief executive of Turkish steelmaker Colakoglu and vice president of the Turkish Steel Exporters Union (ÇIB).

“The main problem for Turkey, however, is the negative [impact on] demand because of increased local prices after the loss of value for the Turkish lira, resulting in a big decline in export tonnages. [But low-priced] imports from China, Malaysia and South Korea have [recently increased] significantly – [although] imports from China might fall if the Chinese government decides to reduce steel production,” Dalbeler said early in August.

The main problem for the flat steel sector in Turkey is the lack of end-user demand caused by economic uncertainty, market participants told Fastmarkets.

“The Turkish Central Bank’s decision to raise interest rates did not result in [a rebound in the value of the] Turkish lira and, despite the lira being weak, exports are still limited,” a trader told Fastmarkets. “As a result, steel buyers are waiting for demand in both the local or export markets to improve before placing big orders.”

Another market participant said: “We expect September to be stronger in terms of steel market activity, but we still do not expect a very strong market because buyers are hesitant to book big quantities. It is not only about the weak lira; it is about demand from end users.”

Turkey imported 4,762,131 tonnes of flat steel in January-June 2023, 13.60% more than the 4,192,011 tonnes imported in January-June 2022, according to the Turkish Statistical Institute (TUIK).

The country exported 1,468,183 tonnes of flat steel in January-June 2023, 40.34% down on the 2,460,802 tonnes exported in the same period of 2022, according to TUIK data.

Turkey produced 15.9 million tonnes of crude steel in January-June 2023, a 16.3% year-on-year decline, according to the Turkish Steel Producers Association (TÇÜD).

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Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar), export, fob main port Turkey, was unchanged week on week at $560-570 per tonne on Thursday.

Meanwhile, wire rod export prices were also steady from last week.

The weekly price assessment for steel wire rod (mesh quality), export, fob main port Turkey, was $600-610 per tonne on August 24.

“The recent upturn in scrap costs pushed up domestic long steel prices,” the chief executive officer of a major steel mill said. “However, demand in the export markets is still sluggish. Half of the rebar demand from last year is missing in the export markets, bringing the total loss in the rebar market to 30%. Wire rod is in an even worse situation. So the market will keep moving sideways.”

Domestic

The domestic rebar and wire rod prices have increased over the past week on the effects of the weakening lira.

The Turkish currency was trading at 27.215 lira to $1 on August 24, compared with 27.073 lira to $1 on August 17, according to Oanda.com.

Turkish mills mostly buy raw materials in US dollars before selling finished steel products to the domestic market in the local currency, so a weaker lira typically prompts an increase in steel prices.

Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar), domestic, exw Turkey, was 19,200-19,700 lira ($705-724) per tonne on Thursday, up from 18,800-19,000 lira per tonne a week earlier, including 20% VAT.

The weekly price assessment for steel wire rod (mesh quality), domestic, exw Turkey, was 20,000-21,000 lira per tonne on the same day, up from the 19,000-20,000 lira per tonne of last week.

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