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|South African FeCr Producers To Polarize (1)|
|= Operational rates will be far lower in the winter-half (April - September) to avoid the quite high power costs =|
Sustainability of world stainless steel production is undoubtedly based on stable supplies of ferrochrome of the South African producers. However, the ability of the producers to supply sufficient ferrochrome is questioned these days due to the restrictive factors for them to stably continue profitable operations. The biggest and probably the most difficult to solve among the factors is that the producers are suffering from the low ferrochrome prices, below costs for most of the producers in South Africa. Therefore, the stainless steel industry, the main user of ferrochrome is required to seriously work on how to secure stable supplies from the country.|
Summary of the voices from the participants to the ICDA (International Chrome Development Association) annual meeting held just recently at Cape Town, South Africa, most of which are from chrome and/or stainless steel industry/trading is as follows:
(i) There had been two big producers firmly leading the ferrochrome producing industry in South Africa, Xstrata and Samancor Chrome, until recently in terms of stable supplies and benchmark price setting, but since earlier this year, it has become evident that Xstrata took the role of leading the industry in its real sense and Samancor Chrome was placed in the second-tier position below Xstrata. This could mean that the ferrochrome industry is being polarized, i.e. one major versus other minors.
Xstrata already started construction of their expansion, Lion Phase 2 with planned start-up in 2013 of annually 380,000 tons of capacity increase, which will make its total annual capacity increased to 2million tons of ferrochrome. On the contrary, other producers including Samancor Chrome will be obliged to stay with the current production capacity at least until 2015 due to the restricted power supply in the coming several years.
(ii) One of the advantages of South African ferrochrome producers was the low power cost, even lower than the power price in Canada, but it is becoming an old tale now that ESKOM, the parastatal power company in South Africa is authorized to raise power price by 25-30% annually. If the power price is raised as planned, it is estimated to become almost equivalent to the power price in China or in India. In addition, the cost of labor, which used to be another advantageous factor has been rising almost every year, causing the costs to constantly go up.
As the planned rise in power price every year is implemented, producers have changed their production schedule to fortify curtailment in winter time (especially in June through August) when the power becomes far higher than before together with the new rises, by minimizing the number of operating furnaces. Under such a plan, the producers try to compensate the loss in production in winter by increasing output during summer, September through March, i.e. before April when the power price is scheduled to rise every year.
(iii) As a result, output of ferrochrome in a year becomes uneven, and the gap between the period of increased production and the period of minimized production has to be wisely and carefully worked out for constant supplies to customers. In other words, the surplus from the maximized production has to be kept as the producers' inventory for the winter-half of low production.
However, some producers who have been put into unhealthy financial status by the recent depressed market seem obliged to dispose of the inventory for cash. The winter-half of the year in the southern hemisphere may become a period of ferrochrome bargain. For reference, production of ferrochrome of 2010 in South Africa on quarterly basis was, January - March: 880,000 tons (24.9% of the annual production), April - June: 920,000 tons (26.0%), July - September: 768,000 tons (21.8%) and October - December: 956,000 tons (27.3%). Production in 2011 will provide more clear contrast between the quarters to indicate fairly high production during October 2011 - March 2012.
(iv) Under the current market situation the charge chrome naturally goes to China where demands have been always growing, but price has to be very competitive. Chinese mills usually quote prices they want, no matter whether the price is above or below the ferrochrome producers' costs, as the mills basically procure material on tender basis where only competitiveness governs. Their quoted price for ferrochrome in December is said to be US$0.85 - 0.90/lb Cr. In August/September of this year, when South African Rand was stronger, the price was US$0.95 - 0.98/lb Cr, but the December price, although it is much lower than the August/September price, is better off for the sellers, thanks to the weakened Rand by about 20%.
|last modified : Tue 13 Dec, 2011 [10:40]|