Chrome prices to weaken but China stimulus could offset deterioration, says Tharisa

CHROME prices were expected to “retreat” in the current quarter following a slowdown in world economic activity, although there was the possibility of declines being offset by China stimulus, said Tharisa, the chrome and platinum group metals (PGMs) producer.

Commenting in its third quarter update today, the UK listed firm reported a 39.5% quarter-on-quarter increase in the chrome price to $247/t. Coupled with a relatively strong average PGM price and sustained PGM production Tharisa produced a solid three months.

Net cash increased to $48m after paying out the interim dividend of $8.8m which compares to a closing net cash balance of $25.9m in the previous quarter.

Phoevos Pouroulis, CEO of Tharisa, said that “external factors … overshadowed” the quarter including Russia’s invasion of Ukraine, inflation, supply chain constraints and the lockdown in China as a result of its zero Covid-19 policy.

Despite this chrome prices appreciated significantly owing to destocking of port inventory and “robust” ferrochrome and stainless steel production in China, Pouroulis said. “We expect a price retreat in the next quarter,” he said, adding that stimuli in China as well as the possibility of supply disruptions “… would reduce the extent of such a threat”.

The average PGM price – which has delivered stellar returns for Tharisa during the last 18 to 24 months – was fairly resilient. Despite the brutal liquidation of metals in the quarter, the average basket price was $2,677 per ounce – a quarterly decline of 4.6%.

“Slowing economic growth will influence the demand side, however, slowdown in supply and no major new projects coming online within the next 24 months means any demand increase is expected to lead to price increases,” the company said in its quarter notes.

PGMs production totalled 42,100 ounces compared to 44,100 oz in the previous quarter. Chrome output was disappointing: Tharisa produced 289,700 tons compared to 374,900 tons in the previous quarter.

Tharisa said it has sought alternative routes in order to export chrome. This comes amid the continuing deterioration in performance of Transnet Freight Rail, a unit of the state-owned transport and freight utility, Transnet.

Said Pouroulis: “Notwithstanding the rail and port infrastructure challenges, the logistics team have successfully exported our chrome products via various channels and modalities.” This is short hand for transporting chrome via South Africa’s road network.

Transnet is about to embark on a 10 day shutdown which is said would result in debottlenecking of the rail network from Mpumalanga province through to Richards Bay in KwaZulu-Natal province.

Shares in Tharisa were unchanged today but on a year to date basis the stock is 22% weaker and 18% weaker over 12 months.