South African ferrochrome producer Merafe Resources reported a four-fold rise in full-year headline earnings, but said it would not yet restart its suspended furnaces due to a soft short-term demand outlook.
Merafe, which operates a joint venture with Xstrata, is currently running only three of its 20 ferrochrome furnaces due to the decline in the metal's price. The suspended furnaces represent 80 percent of the company's annual capacity.
"In the short term, the demand for ferrochrome in Europe, North America and Japan remains low," Merafe said in a statement on Tuesday, adding that demand in China was picking up.
"As global demand recovers, the decisions to defer or cancel ferrochrome capacity expansions are expected to lead to ferrochrome supply constraints and again place upward pressure on pricing."
Merafe said its full-year headline earnings per share rose to 42 cents from 10 cents the previous year, boosted by higher prices, the weakening of the rand against the U.S. dollar and despite the large output cuts.
Headline EPS is the main profit gauge in South Africa and strips out certain one-off, financial and non-trading items.
Full-year revenue rose to 2.8 billion rand ($270.1 million) from 1.6 billion rand the previous year.
"You can't be critical of this sparkling set of results, but it's more about what the future holds and this shows just how cyclical the ferrochrome business is," said analyst Sasha Naryshkine of Vestact, a private client asset manager.
In the first half of 2008, before the financial crisis hit, the market was driven by high stainless steel production and Merafe said the average European benchmark ferrochrome price rose to 176 U.S. cents per lb in 2008, up from 89 cents in 2007.
Merafe said the outlook for ferrochrome, a key component in stainless steel, remains robust in the medium to long term, but that none of the suspended capacity would be restarted for now.
It expects stainless steel production to pick up, but 2009 production will fall compared to the previous year's levels.
"The market is not expecting anything for the time being ... and it could take up to 18 months before the tide turns," Naryshkine said.
Merafe said it would declare no dividend for 2008 and Naryshkine said that, along with the reduction of debt by 458 million rand to 350 million, showed the company was prudent and trying to preserve cash for when the market turns.
The company said its cash balance at the end of the year was 540 million rand.
Source: Bloomberg
No comments:
Post a Comment