Ferrochrome producer Merafe Resources’ net profit for 2008 is expected increase by between 317% and 358%, on the back of record ferrochrome prices in the financial year, the JSE-listed company said on Thursday.
Merafe, which produces ferrochrome in a joint-venture with Zug-based Xstrata, said it expected to post net profit of between R1-billion and R1,1-billion, resulting in earnings a share and headline earnings a share of between 41c and 45c a share.
“2008 was a record year for Merafe, mainly due to record ferrochrome prices and strong cost control,” the company said, adding that the first half of the year was characterised by “robust” supply demand fundamentals.
Ferrochrome base prices remained strong throughout the year, with the average European benchmark price of $1,76/lb, climbing 97% on the previous year’s price.
In the first half of 2008, most ferrochrome producers deferred or scrapped plans to expand, owing to electricity constraints in South Africa, which is the world’s largest ferrochrome producer. And, with the current global economic slowdown, the deferral of planned expansions was expected to continue.
Merafe said that this would put upward pressure on pricing, when the global demand recovered, as these decisions would lead to ferrochrome supply constraints.
In the financial year ended December 31, the company reported attributable saleable production of 223 000 t of ferrochrome, mainly used mainly in the production of stainless steel.
However, output was lower than the previous year, following significant production cuts in the final quarter of 2008, in response to the worldwide economic slowdown.
The Xstrata-Merafe chrome JV has suspended 80% of its yearly output. First, it had suspended production at 11 of its furnaces, and early this month, the venture had suspended a further six furnaces, leaving only three out of 20 ferrochrome furnaces operating.
The total suspended output capacity represented 1,37-million tons of the annual operating capacity.
However, despite the cutback, Merafe had decided to hold on to its operations personnel, to enable the company to snap back into action when the demand for ferrochrome picks up.
The outlook for ferrochrome remained robust in the medium term, as stainless steel production was expected to rise from the current low levels, supported by major economic stimulus plans, which included significant investment in infrastructure.
But for 2009, global stainless steel production was expected to be lower than 2008’s output, which was already 11% lower than 2007’s production.
Stainless steel production dropped during the 2008 Olympic Games in China, and that was followed by a dramatic slump in demand in the fourth quarter, owing to global financial turmoil, affecting most commodity markets.
The company will release its results on March 3.
Source: Mining Weekly
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