July 15, 2010 / 11:31 AM / 10 years ago

IFM sees no fall in ferrochrome Q4 contracts price

LONDON (Reuters) - An end to de-stocking coupled with rising demand will ensure ferrochrome contract prices do not fall below current levels for the fourth quarter, South African producer International Ferro Metals (IFM) said on Thursday.

A labourer works in a ferrochrome factory at Bharibramna, 20 km (12 miles) west of Jammu, July 15, 2008. REUTERS/Amit Gupta

Earlier this month, ferrochrome producers in South Africa, the world’s largest producer, agreed to a less-than-expected fall of 4 percent in the third-quarter contract price to $1.30 a lb.

“We are happy with the price,” IFM chief executive David Kovarsky told Reuters. “At the moment we’re going through a de-stocking cycle but it doesn’t reflect end consumption.”

“By the end of this quarter we’ll start seeing a revival in demand as stainless steel production starts increasing,” he added. “I wouldn’t expect it (Q4 price) to be lower than $1.30.”

The ferrochrome sector made sweeping cuts to production last year when demand and prices tumbled during the global downturn.

Ferrochrome, used in stainless steel to prevent corrosion, is traded at about $1.18 a lb on the European spot market, well below levels above $2.50 a lb in April last year.

“We are seeing a contraction in global steel production globally, particularly in China and Europe,” he added. “The immediate challenge is volume in this quarter but I think they will pick up in the next quarter.”

IFM can produce 265,000 tonnes of ferrochrome per year at full capacity, but Kovarsky said this year’s figure will be below this due to the global economic slowdown.

Output and sales for the year to end-June 2009 fell to 110,364 tonnes and 101,835 tonnes, respectively, from 205,607 tonnes and 207,862 tonnes in the previous financial year.

The London-listed firm operates the Lesedi mine, and is in the process of obtaining a license for its Sky Chrome project, which should begin mining by the end of the year.

Kovarsky said IFM sells its ferrochrome through both contracts and into the European spot market, mainly to consumers in Europe and the United States.

PROBLEMS POSED

South Africa, which has more than 70 percent of the world’s chrome ore reserves, has seen its miners hit by power shortages, labour strikes and a strong rand in the last few years.

In May, a nationwide transport strike paralysed railways and ports and forced mining groups Xstrata and Samancor to declare force majeure on ferrochrome exports.

“The union’s expectations were fuelled by World Cup soccer — they thought they could hold South Africa to ransom during that period — that period has gone,” Kovarsky said.

State-owned electricity firm Eskom, which provides 95 percent of South Africa’s power, is increasing tariffs to fund expansion.

“We can’t be complacent about price,” Kovarsky said. “The increase in electricity prices, will eventually reflect itself in an increase in the ferrochrome price.”

“The fortunate thing about being a South African producer, is that South Africa supplies about 45 percent of the world’s ferrochrome,” he added. “South Africa is generally a price maker, not a price taker.”

The South African-based company was running at a profit in April, but it was not be enough to pull the firm out of the red for the full fiscal year ending in June.

The miner is due to issue a production report on Tuesday.

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