Ferrochrome supplies face headwinds

Production expansion will boost prices

Tom Stundza -- Purchasing, 11/19/2009 10:40:09 AM

The anticipated rebound in world stainless steel production in the next decade will boost demand for ferrochrome but growth of supplies may be stifled by power availability and cost constraints in South Africa, the top ferrochrome producer.

If power-plant expansions are undertaken in top ferrochrome producing countries, buyers worldwide can expect higher prices longer term, forecasts Mark Midgley, marketing director at Kazakh producer ENRC (formerly the Eurasian Natural Resources Corp.), the world's largest producer of chrome ore.

At present, as reported, ferrochrome demand is virtually nonexistent  since world stainless steel output has plummeted, But, looking ahead in a speech to the recent international ferroalloys conference in Monte Carlo, the London-based executive says that "the stainless steel (growth rate) is probably expected to double over the next 11 years." According to Reuters reports, China is expected to be the driver for global stainless steel production expansion between 2010 and 2020. Upshot: "While chrome production or needs are expected to have to increase by around 50%," Midgley says.

World production of chromite in 2008 was 24 million tons, according to the International Chromium Development Association. Of the world's total production of chromite, more than 90% is smelted into ferrochromium alloys. About 3.4-million tons of ferrochrome was produced in South Africa in 2008 out of a total of 8 million worldwide. Ferrochrome is used in making stainless steel to prevent corrosion.

Ferrochrome currently trades around 89¢/lb, well below levels above $2.50/lb in April of last year. Midgley says average ferrochrome production costs in South Africa over the first nine months of this year had grown to 62¢/lb from less than 50¢ this time last year. He adds that Chinese production costs for ferrochrome are currently over 70¢/lb. "The floor price for ferrochrome is increasing all the time," a Reuters report adds. "What is interesting to note, is how close South Africa is getting to China's production costs."

Midgley forecasts that expansion efforts next decade by power companies, such as South Africa's state-owned electricity firm Eskom, will boost ferrochrome production costs by at least 6¢/lb.