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Xstrata slashes ferrochrome output

Allan Seccombe | Mon, 10 Nov 2008 13:24
[miningmx.com] -- XSTRATA, the world’s largest producer of ferrochrome, is cutting 500,000 tonnes of production by suspending six furnaces as the steel market shows signs of slowing.

The news comes on the same day that Rio Tinto said it was making a 10% cut in its iron ore production from the Pilbara region in Australia to between 170 million and 175 million tonnes for 2008.

South Africa is the largest supplier of ferrochrome.

Another ferrochrome producer, African Rainbow Minerals, said at the end of October it was suspending two furnaces because of the state of the market.

Xstrata and its empowerment partner Merafe Resources produced some 1.42 million tonnes of ferrochrome in 2007, of which 284,000 tonnes was attributable to Merafe.

The six suspended furnaces comprise three at Rustenburg, two at Lydenburg and one at Wonderkop. Their suspension will cut 80,000 tonnes from ferrochrome output in 2008.

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Merafe’s share price plunged into the red on the news from being up 5.8% on the day at 111 cents. It is now down 5.8% at 98 cents on the JSE.

The market is also digesting news of China’s $586bn package to stimulate its economy. Some analysts point out the package will be spread between now and the end of 2010 and that it appears to comprise of a number of things already announced, Reuters reported in an analysis that raised the question of how exactly the package would be funded.

The Xstrata/Merafe venture has installed capacity of 1.96 million tonnes at its 20 furnaces.

“As the global market leader in ferrochrome, Xstrata and Merafe are acting responsibly and decisively to cut back production during a period of short term demand weakness,” said Peet Nienabler, chief executive of Xstrata Alloys.

Numis Securities said last week a number of stainless steel producers were vigorously cutting back on production.

Samancor has cut its ferrochrome by half and Hernic will reduce output by 40% from December.

“The spot market for ferrochrome is extremely thin given current demand conditions so we are unusually ‘unsighted’ on Q1 (first quarter) negotiations, but we suspect a return to the order of $1/lb for Q1 charge contracts is not impossible,” said Simon Toyne, an analyst at Numis.

Other steel input materials like nickel, coking coal and iron ore have seen prices pull back by 30% since September when the price of ferrochrome for the last three months of the year was set.

“Ferrochrome declining by this amount would imply 130c/lb. Given that stainless steel cutbacks are accelerating we fear even lower prices for Q1 2009,” Toyne said.