LMEWEEK-ANALYSIS-Ferrochrome to test new highs on demand surge

Thu Oct 14, 2010 2:08pm GMT

* Stainless steel demand, low stockpiles support prices

* Production costs in South Africa set to rise

By Michael Taylor

LONDON, Oct 14 (Reuters) - Steel ingredient ferrochrome will test new highs within the next 12 months, as production fails to keep pace with a jump in global demand and current stockpiles are too low to fill the gap.

The bullish outlook for the minor metal, used in stainless steel to prevent corrosion, is further enhanced by rising output costs in top producer South Africa, due to a strong rand, higher power costs, labour and transportation problems.

Although high carbon ferrochrome FECRO-HC-RU traded this week at about $1.22 a lb on the European spot market -- well below levels above $2.80 a lb in April 2008 -- the industry expects rises in 2011.

"We could get a good run on numbers for next year," said one South African producer. "Above $2 is possible. For the direction, it has got to be up.

"Supply is not there to fully meet the requirements, and the cost of production is only going one way."   Continued...

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