South African-based International Ferro Metals Ltd gave an upbeat view of prices and Chinese demand after posting an 85 percent jump in second-quarter output due to the restart of a furnace.
The London-listed firm's shares jumped as much as 11 percent on Thursday after it said the sector was rebounding after being hard-hit from the global downturn last year.
Producers of ferrochrome, a key component in stainless steel, slashed output early last year, closing down furnaces, as demand sunk, but much of the capacity in the sector has been restarted.
"Since the beginning of the year, stainless steel production utilisation levels, particularly in China, have increased," Chief Executive David Kovarsky told a conference call.
"What we're seeing ... is that Chinese spot prices are outpacing this quarter's (European) contract price."
The first quarter contract price in Europe fell 2 cents to $1.01 per lb, but is expected to rise in the second quarter. The price peaked at $2.05 a lb in the third quarter of 2008.
"The spot price is indicating an increase (in the Q2 contract price), to what level, I'm not sure," Kovarsky added.
"We believe that management's decision to build inventory while ferrochrome prices and production costs are low should allow IFM to take advantage of a recovery in the ferrochrome price during 2010," analyst Mike Stuart said.
Inventories rose to 32,504 tonnes from 9,752 tonnes three months earlier because the firm wanted to wait for higher prices, Kovarsky said.
He hoped to wait until the June quarter to sell off the stocks, but might unload some of it in the current quarter if customers needed material, he added.
Ferrochrome production rose to 57,942 tonnes in the last three months of 2009, following the restart of a furnace in August, from 31,289 tonnes in the same period the previous year.
Sales rose by 61 percent, less than growth in output due to the stockpiling.
The firm had a net cash balance of 248 million rand at the end of the year, which was more than enough to cover expected capital expenditure of about 100 million rand for the remainder of the fiscal year, Kovarsky said.
Last September, IFM swung to a loss for its fiscal year to end-June on lower output and prices of ferrochrome, a key ingredient in stainless steel.
The world's biggest ferrochrome producers are Xstrata and ENRC.
Source: Reuters
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