Samancor Chrome Ltd., the world’s second-biggest ferrochrome producer, may shut some of the South African operations it restarted earlier this year as costs rise.
Expenses have climbed “dramatically” and electricity fees will gain further, Chairman Danko Konchar said in an interview late yesterday. Samancor restarted about three-quarters of its capacity after suspending all output in December on weak demand.
Eskom Holdings Ltd., which supplies about 95 percent of power in South Africa, has asked regulators to permit a 34 percent increase in tariffs this year after 2008’s 27.5 percent jump. Ferrochrome producers pay about 20 percent on top of regular tariffs during winter, when power demand is higher.
Samancor will reconsider its level of production in June, when winter tariffs start, Konchar said. Gains by the South African rand, trading at about 8.24 per dollar now compared with 10.1949 at the end of January, also are a “concern,” he said.
Xstrata Plc, International Ferro Metals Ltd. and other ferrochrome producers suspended output as prices fell because of lower stainless-steel demand. Quarterly ferrochrome contract prices have slid 63 percent to 69 U.S. cents a pound in 2009.
Price may increase “slightly” or remain flat in the third quarter, Willem Venture, head of equities at Cape Town-based Prescient Securities, said by phone yesterday, adding that demand remains “fairly weak.”
Third-quarter price negotiations will probably start next month, Stuart Elliot, a director at Merafe Resources Ltd., said yesterday. The company’s South African venture with Xstrata is the world’s biggest ferrochrome producer.
“If you look at the dynamics, the price ought to increase,” Jasper Pieters, operations director at Hernic Ferrochrome Ltd., said yesterday, citing rising electricity prices, the “stronger” rand and an “apparent shortage” of lumpy ferrochrome. Hernic restarted some output this month.
“There are early signs of recovery in demand,” Alwyn Smit, chief executive officer of Finnish investment group Ruukki Group Oyj, said yesterday. “The question is whether those are sustainable. If we haven’t seen the worst, then we are close to the bottom.”
Ruuki is spinning off wood businesses to focus on natural resources. It’s already purchasing Mogale Alloys Ltd., a South African ferrochrome producer.
Ferrochrome prices will average 70 cents a pound this year, down 62 percent from 2008, Citigroup Inc. estimated last month.
Source: Bloomberg
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