Stainless demand, weaker rand key in ferro talks Wed Jun 21, 2006 1:12 PM GMT
By Daniel Magnowski
LONDON (Reuters) - Unexpectedly strong demand for stainless steel and a weakening rand-dollar exchange rate will be top of the agenda when buyers and sellers sit down next week to set third quarter prices for ferro-chrome.
South African ferro-chrome producers are suggesting that strong stainless markets and higher power costs in the Southern Hemisphere winter would justify a price rise of up to eight cents per pound.
Meanwhile, buyers of the alloy at European steel mills intend to resist on grounds that the exchange rate has shifted in the producers' favour.
"It's window dressing but so far there has been no official contact," a raw materials buyer at a steelmaker said.
Ferro-chrome, which makes steel stainless, is produced in bulk in South Africa, where miners have long been saddled with a strong rand-dollar exchange rate.
To offset the punitive effects of a strong rand on their balace sheets, producers -- led by world number one Xstrata -- steered through a series of increases during 2004 and early 2005.
"The rand is going down now, thank God, but we've been making losses, and if prices go up five cents but our costs go up five cents too, we'll be in the same position," a producer argued.
Another said that unexpectedly good demand for stainless meant the buyers could not afford to squeeze suppliers too hard.
"Buyers will come out clutching their rand graphs," he said, "but demand for stainless is strong."
The rand has lost around 11.5 percent against the dollar this year and hit a fresh two-year low on Wednesday.
STAINLESS DEMAND STRONG
Unexpectedly good demand for stainless has changed the picture in the past few months.
When second quarter prices of around 70 cents per pound were agreed in March, some suggested this price would be carried over into the summer.
This is now distinctly unlikely.
"They will argue that they need more money, and they'd rather shut down (capacity) than accept the same prices again," the buyer said.
The likelihood, as usual, is that the two sides will come to a compromise that will take some of the pressure off ferro-chrome producers without costing the mills too much.
A rise of around five cents per pound was seen as likekly.
"Nobody is interested in a war," the buyer said.
"We understand they suffer, and they know the stainless steel industry is in a better position than it was some months ago. We will come to a reasonable solution."
CCI Price at posting:
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