JOHHANESBURG (Reuters) - Hernic Ferrochrome, a unit of Mitsubishi Corporation, said on Thursday it may cut output early in 2010 if power utility Eskom implements a high tariff, and also on expected lower Chinese demand for the metal.
South Africa’s Hernic said the industry was preparing for a decline in Chinese demand for the corrosion-resistant alloy of chrome and iron, mostly used in making stainless steel.
South Africa is a leading producer of ferrochrome, but the global crisis has seen a downturn in consumption by that sector.
Hernic operates four furnaces in South Africa, and has an annual ferrochrome capacity of about 390,000 tonnes per year.
Hernic Chief Executive Officer Tetsu Kotaki told Reuters in an interview that prices of ferrochrome were also expected to drop due to the expected lower demand by the markets.
“We are very carefully reviewing the markets at this moment. Should further deterioration take place, we may have to think about some cut back of our production, not this year but sometime in the first quarter of next year,” Kotaki said.
He did not say how much output could be scaled back.
The benchmark European price rose by around 14 cents to about 90 cents a pound for the quarter to end-December.
“We may see some adjustment of the price, maybe a small reduction of the price,” he said.
Kotaki said ferrochrome demand by the automotive industry was good due to increased manufacturing of electric cars, which had prompted some Western government to provide subsidies to manufacturers.
“The automotive industry seems to be on the way to recovery,” Kotaki said.
“But at every stage inventory levels seem to be saturated or high and because of that, there is a request mainly from Asian customers to reduce delivery for those customers, that has been happening from late October and in November,” Kotaki said.
Kotaki said a higher tariff raise by South African state-owned electricity firm Eskom could force the company to shut down one of its furnaces or reduce the power load and ultimately cut output at all the furnaces.
“We may think about some adjustment of production when electricity tariffs are high. We need to work out some sort of plan, we will respond to any change in the market but we will have to be very strategic,” Kotaki said.