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Meaningless price war in the chrome industry

March 1, 2013

BEIJING (Asian Metal) - The chrome industry has been hit by the recent news of major Chinese stainless steel producers’ price cuts on ferrochrome purchases in March. ETI KROM found the recent price cuts unacceptable, unreasonable and indecipherable. Such volatility in prices impairs the ferrochrome and chrome ore producers.
 
In economic literature, price war is an indication to state of intense competitive rivalry accompanied by a series of price reductions. In the short term, price wars are good for consumers, who can take advantage of lower prices.
 
In the medium to long term, price wars can be in favor of the dominant firms in the industry. Typically, the smaller firms cannot compete and must close. In the long term, the consumer may lose too. With fewer firms in the industry, prices tend to increase, sometimes higher than before the price war started.
 
We all know that because of price-pressure on the industry, there is no new investment in Turkey and South Africa, especially in terms of chrome ore mining. The example from Turkey is that even the major producers cannot work in high capacities and do not attempt new investments, while the small- and medium-scale players started to move out of market and close their facilities. We should keep in mind that 70% of the chrome ore China purchases is provided by South Africa and Turkey. Without supply from these 2 countries, Chinese stainless steel industry will face difficulties.
 
The above-mentioned price volatility and pressure on ferrochrome and chrome ore will inevitably affect the Chinese stainless steel industry negatively because in the long-term, reducing investment and productions, especially in chrome ore, will bring China higher prices. ETI KROM believe that major stainless steel producers are playing hard-ball against the chrome industry. The players of the chrome industry cannot stand too long against increasing costs, while profitability is decreasing each day.
 
ETI KROM have decided to reduce chrome ore production and sales in order to bring the market to a balance in terms of supply and demand. The company believe that the other companies, in Turkey and elsewhere, will think likewise in a reasonable manner to prevent the oversupply in the industry and protect the future of the market.
 
As ETI KROM indicated earlier, the chrome ore industry needs visibility, and major actors in China should act responsibly to keep the ferrochrome and chrome ore market in a good health.
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