Johannesburg - The Glencore-Merafe Chrome Venture was poised to benefit from increased demand for ferrochrome, which could see stainless steel production rise 3.5 percent this year and 3.8 percent next year, Merafe Resources said yesterday.
The venture operates five ferrochrome smelters, 22 ferrochrome furnaces and nine mines. Glencore owns 79.5 percent of the venture. Merafe participates in the venture through a subsidiary, Merafe Ferrochrome, whose share of the earnings before interest, taxation, depreciation and amortisation is 20.5 percent.
The venture, which has a total capacity of 2.3 million tons a year, came about when Merafe and Glencore pooled their operations in July 2004, creating the largest ferrochrome producer in the world.
In a note accompanying its results for the year to the end of December 31, Merafe said the expected increase in stainless steel production this year and next year was an indication of strong demand for ferrochrome “in the short-to-medium term”.
The group said global stainless steel production was 45.2 million tons last year, which was an 8.8percent year-on-year increase.
“A surge in Chinese stainless steel production was the leading influence behind the global increase, as China increased its annual output to 24.4 million tons, which is equivalent to 13.3 percent year-on-year growth.
“Other significant stainless steel-producing regions also recorded year-on-year growth.
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"Favourable trade and anti-dumping conditions in Europe, India and the US supported increases of 1.8 percent, 6.6 percent and 6.7 percent, respectively.
"Collectively, these regions produced 13.2 million tons in 2016, which is an increase of 3.9 percent year on year,” Merafe said.
The company said a surge in the Chinese stainless production was also behind the increase in ferrochrome demand, which was up 7.6 percent year on year.
“Chinese stainless steel mills were the largest contributors to this increase, with demand growth of 9.4 percent year on year to 7 million tons.
"Chinese mills typically employ lower scrap utilisation ratios compared to global averages and therefore require a significantly larger portion of primary chrome units to meet stainless steel production increases,” Merafe said.
It said ferrochrome prices had continued to increase since the second quarter of last year as a result of increased ferrochrome demand, lower stock levels and increased chrome-ore prices.
Meanwhile, the company said it would stick to its strategy of slashing debt and paying dividends. In the year to December 31, the company’s revenue increased 29 percent from R4.4 billion to R5.7 billon.
Headline earnings a share increased 53percent to 21.2cents a share. The company declared a final dividend of 4c a share.
Merafe said it had reduced its head office debt from R559 million to R363 million.
Merafe’s shares on the JSE were up 1.07 percent, to close at R1.89.