High-carbon ferrochrome suppliers have weathered the worst of the latest cyclical market downturn and should see rising prices in the latter part of this year, suggests Swiss-based producer Xstrata. "The high-carbon ferrochrome market has bottomed and that a gradual recovery in prices may start from the third quarter of 2002," the company says in comments presented to analysts at the end of June. High-carbon ferrochrome prices slipped to troughs well below 30¢/lb late last year, from highs around 45¢ in mid-1998, amid oversupply and a downturn in western-world stainless steel production.

Around 88% of global ferrochrome consumption of some 4 million metric tons a year is absorbed by the stainless steel industry since stainless steel contains on average 18% chrome content by mass. Looking beyond the short-term downturn, however, prospects for consumption from the stainless sector remain healthy, Xstrata suggests. "More than 60% of stainless steel's end-use markets are growing at a long-term rate of greater than 6% per annum and the remaining 40% at approximately world GDP growth," according to the company.

The market's supply/demand balance has been helped by improving stainless steel output, supply cuts by ferrochrome producers and reduced availability of stainless scrap, which is an alternative source of chrome for steel producers. Stainless scrap supply fell to 4.2 million metric tons last year from 5.3 million metric tons in 200 because of lower nickel prices, Xstrata says.

Xstrata believes it currently has a 26% share of the world ferrochrome market, with annual output capacity of 1.3 million metric tons, though 2001 production was 850,000 metric tons. For the 1991-2001 period, world ferrochrome production grew by over 4% a year, supported by annual growth of over 5% in stainless steel output over the same period. At present, however, the chrome industry is operating well below capacity, with more than a million metric tons of annual production mothballed.

World ferrochrome output this year is expected to reach 4.124 million metric tons, some way down from total production capacity of 5.1 million metric tons, the company forecasts. South Africa remains the dominant producer, accounting for almost 2.5 million metric tons, followed by Kazakhstan (490,000 metric tons), India (320,000) Scandinavia (314,000), and Zimbabwe (260,000).

Of the output cuts of around 1.3 million metric tons on an annualized basis currently in place, 637,000 metric tons—in India, Japan, Norway, South Africa and Turkey—are likely to remain permanently closed. Also idled on a temporary basis is an additional 630,000 metric tons of capacity in South Africa—180,000 metric tons at the Tubatse plant of Samanco (now a units of BHP Billiton); 260,000 metric tons at Xstrata's Rustenburg plant, and 190,000 metric tons at iXstrata's Wonderkop facility.