CAPE TOWN, South Africa Ferrochrome consumers are nervous about South Africas tightening supply after the countrys producers cut output under electricity buyback deals, International Ferro Metals Ltd. chief executive officer Chris Jordaan said on the sidelines of Mining Indaba in Cape Town.
South Africas ferrochrome producers all struck deals recently to cut production and sell the conserved power back to state-run power provider Eskom Holdings SOC Ltd., leading to tighter spot ferrochrome supplies from the country (amm.com, Jan. 24).
Eskom made similar deals in 2012, leading to tighter supplies and higher prices in the first half of the year.
"There is a high probability spot alloy will be tight. To a large extent spot seems to be in short supply, which is contributing to the consumers being a little on edge," Jordaan told AMM sister publication Metal Bulletin. "Estimates are that more alloy was taken out of the market under the Eskom deals than it was this time last year. The surprise was that nobody was really expecting Eskom to buy back power again."
Under the Eskom deals, producers are required to fulfill all contractual obligations and must not cut jobs or declare force majeure as a result of the cutbacks.
Macquarie Group Ltd. estimates that total output could be reduced by 300,000 to 350,000 tonnesabout 3 to 4 percent of annual global outputdue to the buyback deals.
Low stocks and increased demand from China are likely to contribute to the producers case for a rise in the second-quarter benchmark price for ferrochrome, Jordaan said. "I think the benchmark price is under pressure to increase. Two things will put pressure on itlow stocks of both ores and alloys, and also the growth seen in China."
The first-quarter benchmark price for ferrochrome settled at 112.5 cents per pound.
AMMs low-carbon ferrochrome prices have moved up to $2.23 to $2.26 per pound from $2.23 to $2.25 previously, while high-carbon ferrochrome is between $1 and $1.04 per pound (amm.com, Feb. 1).
A version of this article was first published by AMM sister publication Metal Bulletin.