JOHANNESBURG (Reuters) - International Ferro Metals Ltd (IFM) said on Tuesday contract prices for ferrochrome should stabilise in the third quarter, and rise in the fourth quarter driven by a resurgence in demand.
Prices for ferrochrome have dropped due to the global economic downturn caused by the global financial crisis. The global ferrochrome industry has slashed output by around two-thirds in recent months in response to slumping demand.
Most producers in South Africa — the world’s biggest producer of ferrochrome, used in stainless steel to prevent corrosion — have sharply cut back on production.
“In the fourth quarter I expect a resumption of higher demand for ferrochrome, we should see a firmness in fourth quarter price and demand,” David Kovarsky, Chief Executive Officer of IFM told Reuters in Johannesburg.
“By the fourth quarter we should have hit the bottom. We won’t be out of the woods yet, but we should be on the edge of the woods.”
London-listed IFM shut its two furnaces last November, but re-opened one last week to convert its raw material inventory to finished product to help contribute towards fixed overheads.
The furnace will operate for three months. Following this period it will assess the ferrochrome market to justify a continuation of production, he said.
IFM, whose stock is rated as a “buy” by Bank of America, has a peak capacity of 240,000 tonnes of ferrochrome.
Last calendar year it produced 200,000 tonnes, and Kovarsky estimates it may produce about a tenth of that amount this year.
European benchmark ferrochrome prices for Q2 were settled at $0.69 per pound, 13 percent down from $0.79 per pound in Q1. Prices stood at $1.85 in the fourth quarter.
Kovarsky expects de-stocking in the stainless steel industry to end in about three months, and spur buying although at lower levels compared to the period before the financial crisis hit.
“I hope by year end we have our two furnaces up and running, and hopefully in 2010 we can be back in full swing,” he said.
Kovarsky said IFM was financially sound, and at the end of December, it had 500 million rand in cash.
“Even if we don’t sell another tonne of ferrochrome we shall be ok,” he said.
Nevertheless, IFM was in talks with unions to cut 135 jobs and all senior staff will take a 10 percent salary reduction.
Asked if IFM was likely to take part in consolidation in the ferrochrome sector in South Africa, Kovarsky decline to comment.
Privately owned Samancor’s Chairman Danko Konchar said last month he could make acquisitions in South Africa, and analysts said low-cost producer IFM was one of the likely targets.
Kovarsky said IFM plans capital investments totalling about 1 billion rand once it resumes normal production, mainly to help it cope with power shortages in the country.