International Ferro Metals Ltd said demand for ferrochrome continues to be very low and prices do not yet justify a resumption of production beyond July, sending its shares lower.
"The company continues to experience extremely low ferrochrome demand as steelmakers continue to suffer from the global economic fallout," it said on Wednesday, adding that predicting the timing of a recovery is difficult.
First-quarter sales slumped to 10,484 tonnes from 56,905 tonnes in the year-earlier period, with most of the sales made in the early part of the quarter, while production dropped to 1,168 tonnes from 52,422 tonnes after the company carried out a furnace maintenance and upgrade programme.
The Australia-based group restarted one furnace on April 20 and expects output of ferrochrome, used in stainless steel to prevent corrosion, to rise to about 20,000 tonnes or slightly less in the second quarter, Chief Executive David Kovarsky said on a conference call.
"There are signs of a bottoming out of the down cycle but prices have not yet firmed to a level that would justify a resumption of production beyond July 2009, when the current programme of converting raw material inventory into ferrochrome is complete," IFM said in a statement.
It started a three-month programme in April to convert raw material inventory, comprising mainly chrome ore and coke, to finished ferrochrome product.
"At the end of the three-month programme, we will review market conditions, although ferrochrome prices would need to improve from current low levels for continued production to be economic," it said.
Kovarsky declined to say what level prices would have to reach to justify resuming production.
The company said it has shipped about 28,000 tonnes to the Chinese market since the end of March. Kovarsky said China may be also be building up stockpiles of ferrochrome in anticipation of higher prices.
The company's net cash balance dropped to 374 million rand ($44 million) at the end of April from 510 million at the end of March due to foreign exchange losses, payments to suppliers, fixed overheads and furnace restart costs. The strong rand accounted for about 44 million of the reduction.
Analysts at brokerage Numis said the company was operationally in check, but its cash was below forecast. "We will look to rework our cashflow forecasts and will be revising down our current year-end cash forecast of 637 million rand, " Numis said.
"We continue to remain long-term buyers, but following the recent sector rally we believe additional signs of improvement in underlying chrome demand will be required to take the stock beyond its recent highs."
Kovarsky said most of the cash was spent on one-off items and he doesn't expect cash burn to continue at this rate.
"We have made substantial sales beyond the end of March and that will result in our cash pile being replenished to some extent between March and the end of June," Kovarsky said.
The company started a cost reduction programme in March that it expects to achieve savings of about 2 million rand a month and said it is continuing to reduce costs by cutting staff, fixed costs. It imposed a 10 percent pay cut for management and board members.
Kovarsky said the company has cut its full-time staff numbers to 250 from 370.
Source: Reuters
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