TURKEY has imposed power restrictions on the country’s biggest ferrochrome producer, Eti Krom, which some analysts hope will help to support prices for one of South Africa’s biggest industries. In 2012, South Africa was the world’s second-largest ferrochrome producer, having lost first place to China largely because of rising Eskom electricity tariffs and power shortages.
South Africa’s biggest ferrochrome producers are Glencore Xstrata in a joint venture with Merafe Resources; International Ferro Metals, which is listed in London; Samancor Chrome; Hernic Ferrochrome; ASA Metals; and Mogale Alloys, owned by Afarak Group (formerly Ruukki Group).
Turkey ranks among the world’s top 10 producers. Ferrochrome is mostly used in stainless steel, whose production is forecast to rise about 5.5% a year for the next few years, as it is closely correlated with global gross domestic product growth. However, ferrochrome prices have been weak recently because of a slowdown in the Chinese economy coupled with growing Chinese production.
SP Angel analyst John Meyer said this week in a note to clients that the Turkish power utility TEISA had asked Eti Krom to halve its power consumption between 9am and 10pm from Monday to Saturday to help balance the country’s supply and demand. Eti Krom is Turkey’s largest producer of chrome ore and high-carbon ferrochrome. Mr Meyer said the cutbacks would result in Eti Krom losing about 5,000 tonnes of production a month.
But Lara Smith, MD of independent metals advisers and researchers Core Consultants, said Eti Krom Turkey produced a maximum of 144,000 tonnes a year — or 12,000 tonnes a month — of high-carbon ferrochrome. Whether it reduced output to 7,000 tonnes a month for the next five months would not make much of a difference to the overall ferrochrome supply/demand balance.
“The market is still expected to be in surplus in the first quarter of 2014, despite the fact that the surplus is lower than previous quarters,” Ms Smith said. “We still do not expect the price to increase significantly. The bias is towards a marginal increase from the prior quarter.”
Mr Meyer said it was interesting to see power issues affecting production outside South Africa.
China, too, was likely to impose increasing pollution and power consumption restrictions on its less productive industries. Rising costs of power and chrome ore together with a stronger currency were eroding margins for Chinese ferrochrome producers.
JSE-listed Merafe’s shares have added 7c to 79c in the past week, though they are still below their early November level of 81c. In London, IFM’s shares have lifted to 10.5p from 10p in early December. South African ferrochrome producers benefit from a weaker rand/dollar exchange rate as they earn dollar revenue but pay costs in rands.
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