According to Ms Lara Smith ferrochrome expert of Core Consultants produces of stainless steel are now holding their breath as the world metals markets seems to be experiencing a slight slump and stocks of base metals pile up.
Ms Smith said that South African producers have cut production drastically for the third quarter of 2011. Electricity prices go up that time of year so production gets cut back Tata Steel at Richard’s Bay is cutting production down completely.
Companies as far way as Turkey have announced they are going to be operating at 50% capacity until December and they may be forced to stay at those levels until the market comes back into balance before upping production again.
Ms Smith said that ferrochrome is a vital ingredient in making stainless steel with lesser volumes used to make glass. You can’t make stainless steel without chrome, although you can make it without nickel. Stainless steel demand is dependent on the health of the global economy with the global economic crisis prices dipped by around 60% YoY after the highs of 2008 but prices then came back as demand recovered.
Ferrochrome prices dropped again after February 2011 when Ms Smith forecast 133 US cents per pound for ferrochrome the market in a supply deficit at that time but she did not believe prices would now drop to 2009 levels again.
Industry margins have suffered with the cost of production having gone up by around 11% last year, most South African producers experiencing cost increases of 8% to 10%. Assmang announced they would be cutting back ferrochrome production to concentrate on ferromanganese.
China is using existing stocks of stainless steel, and even countries like Sweden were in surplus after the market got a bit of a fright in February when European prices rose from 125 US cents to 133 US cents.
Ms Smith said that there was an overnight spike because we were in deficit. In response people produced more so now we are sitting with the opposite. Capacity was still coming on stream but that is companies able to produce lower down on the cost curve like Xstrata that’s taking capacity up to 2.3 million tonnes a year.
She said that demand will come from Asia and particularly China. India is lobbying for a chrome ore export ban because they feel need that themselves the Indian vehicle production market having increased by around 40% and construction the largest user of stainless steel booming there. China is where the demand is and also to an extent Brazil.
Ms Smith said that the market would see lower prices over the next two years as we wait for Europe to recover its current sovereign debt problems, but prices would stay around 124 US cents per pound over the medium term.
She said that there is around 2 million tons more stainless steel production capacity coming on stream in China by 2015 so the market should then be more in balance and ferrochrome prices will then increase to around 132 US cents per pound.
(Sourced from www.businessday.co.za)
