Ferrochrome prices may start to rebound in the second quarter of next year as production cuts take effect and cost pressures keep supply curtailed, an executive at Kazakh miner ENRC said, following a six-month price slide.
Mark Midgley, sales and marketing director at ENRC, said he expected ferrochrome prices to trade sideways for the remainder of the year as cutbacks in production in South Africa, India, Turkey and Sweden balance against a seasonal slowdown in demand.
London-listed ENRC is one of the world's largest producers of ferrochrome, a raw material for making stainless steel.
Spot ferrochrome prices have fallen in the last six months due to weaker demand from the oversupplied stainless steel industry, particularly in Europe, which has prompted some production cutbacks.
ENRC is currently producing ferrochrome at full capacity, however, and does not expect to cut output.
“The downside is limited because the industry is facing cost pressures. The South Africans are facing a (possible) increase in energy. There is inflation throughout the world affecting logistics costs, and there is wage inflation,” Midgley said.
“I would be surprised if there wasn't some form of rebound in prices. I would like to think we will see something by the second quarter,” he said on the sidelines of a Metal Bulletin ferroalloys conference.
In South Africa, which produces more than half of the world's chrome ore, production has been hampered by violent labour unrest, and the industry faces a potential hike in energy costs.
Power utility Eskom said in October it had applied to more than double the price of its power over the next five years, a move that will deal a heavy blow to industries whose margins are already under pressure.
A slowdown in the global economy and a prolonged debt crisis in Europe have hit consumer confidence and weighed on prices this year for industrial metals including ferrochrome.
Spot prices for high-carbon ferrochrome in the European market have softened to around $0.90 per pound in the last two weeks from about $1.25 in May, a drop of around 28 percent.
Looking ahead, Midgley said demand from sectors such as petrochemicals and oil and gas in Europe continues to show strength, offsetting a slowdown in the car industry.
In China growth rates are likely to remain healthy, he added. “The Chinese are very committed to public spending projects such as railways, airports and roads all of which are major drivers for steel. I'm still confident about China.”
He said the rising supply of UG2 chrome from South Africa, which is a by-product of platinum mining, is a concern for the industry, because the ores are shipped cheaply to China, bringing down the cost of production for the industry there.
“It has meant that the Chinese (ferrochrome) prices have trended downwards,” Midgley said.
“The issue, therefore, is how chrome ore will be dealt with by the South African government. If they put duties on, it will certainly help the industry tremendously.”
He said that although the government has been rumoured to be considering imposing duties on exports, it is likely to tread cautiously ahead of elections.
“Ultimately they may do that (duties), and that might come into force once there is spare electricity capacity in the country. The problem is the electricity balance has to be sorted out.”
UG2 chrome ore, which has a lower chrome content compared with chrome ore, was considered a waste product by platinum miners until a few years ago, but recent technological developments have made it possible to use this byproduct as a raw material for ferrochrome.
UG2 chrome now accounts for 50 to 70 percent of South Africa's total chrome ore exports, according to industry experts. - Reuters