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Background And Base To Rise Fe-Cr Price By 30 US-Cents For Q1 / 2008 (2)
= Value Of Ferro-Chrome Shares 3.4% Of Total Cost To Produce Stainless Steel
( Continued from our No.9378 dated November 29, 2007 )

Samancor Chrome ( Kermas ), a major producer of ferro-chrrome in South Africa, launched to spread out a campaign concerning the points of their argument, which are the reasons " why it is necessary for South African producer to rise price of high carbon ferro-chrome ( charge chrome ) by 30 US-Cents per lb. for shipments in January - March quarter of 2008 ". Following our article of yesterday ( dated the 29th of November ), the points of Samancor Chrome's argument are as follows ;

(3)Price of high carbon ferro-chrome ( charge chrome )
(3-1) Spot price = Spot price of high carbon ferro-chrome is continuously rising from the beginning of 2007, averaging 128 US-Cents per lb. in September, rising in October by 12 US-Cents per lb. and by further 20 US-Cents per lb. in November.

(3-2) Differential between spot price and contract ( benchmark ) price = This differential is widening and has come to around 60 US-Cents per lb. of Cr at present but, by taking into consideration of the discount, it is actually between 70 to 75 US-Cents per lb. From a historical point of view, its maximum differential was in the range of plus and minus 12 US-Cents per lb. of Cr. This gap is not sustainable in terms of low contract prices and, as a matter of fact, nobody can justify this huge difference. The price of charge chrome ( contract material ) for shipments in October - December quarter of 2007 has been settled by roll-over but this settlement is not satisfactory for South African producers and a humiliating acceptance. In the course of time, the exchange rate of Euro ( EU currency ) against US-Dollar has strengthened and, consequently, the price of charge chrome settled for October - December quarter is not a roll-over but a reduction for consumers in the EU countries.

(4)Viewpoints from stainless steel mills
Outokumpu, a leading stainless steel company in Finland, released the data on costs for their production of stainless steel in 2006, mentioning that the primary Cr is only 4.5% of total raw material cost. The breakdown of raw materials in percentages is <> primary nickel : 28.7%, <> nickel scrap : 39.7%, <> primary molybdenum : 9.0%, <> molybdenum scarp : 4.9%, <>primary chrome : 4.5%, <> chrome scrap : 4.5%, <> alloyed iron : 0.9%, <> ferrous scrap : 5.9%, <> other primary metals : 1.4% and <> other scrap : 0.5%. By taking into account of that the raw material cost is less than 75% of total cost, the value of the primary chrome of total cost is 3.4% as the maximum. The stainless steel industry must understand the fact that request to rise price of charge chrome for January - March quarter of 2008 is exclusively driven by cost increase as mentioned above. Squeezing the price of charge chrome will only result in lack of investment. It is necessary for South African producers to invest US$3 billion for the next 8 years in the expansion of capacity for production of charge chrome, and this will enable the stainless steel industry to secure stable supply of a crucial raw material.

(5)Conclusion
(5-1) The producers of ferro-chrome have lived for a long period with a situation that there was enough supply of raw materials and energy, but this situation is now changing rapidly. Therefore, the producers of ferro-chrome and stainless steel will be effected with these changes.

(5-2) Reflecting a dynamic expansion of the demand for ferro-chrome from China, prices of ferro-chrome will continue to rise.

(5-3) In order to comply with the increasing demand for ferro-chrome, it is necessary for South African producers of ferro-chrome to expand their capacity for the production. From this point of view, the contract ( benchmark ) price of South African charge chrome for shipments in January - March quarter of 2008 has to rise to a level of 150 US-Cents per lb. of Cr. ( Completed )
last modified : Wed 05 Dec, 2007 [10:35]
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