The Ferrochrome Market Is Back Up To Speed, According To International Ferro Metals.
By Rob Davies / www.minesite.com
Ferrochrome doesn’t get many column inches in the financial press but it is a crucial commodity in a high tech world that relies so heavily on stainless steel. It is also one that seems to have had a very short, albeit sharp, recession. According to Dave Kovarsky, chief executive of International Ferro Metals (IFM), the ferrochrome market is now almost completely back up to speed after virtually grinding to a halt last year.
Now the market is crying out for the alloy and producers can’t restart capacity fast enough to meet the demand. Dave reports that even with production restarts there is still a shortage of metal as the stainless steel market has, or is not far from, returning to equilibrium. Even so, the recession was brutal and all producers were forced to make cutbacks and idle capacity. This situation was exacerbated by power shortages and high electricity prices in South Africa.
And it is was the issue of power that persuaded IFM to tap the market in August for £22 million to fund the construction of an electrical co-generation plant using waste gases from its furnaces. Although this will only provide between 10 per cent and 13 per cent of the site’s electrical requirement, it will allow the company to run the furnaces at full capacity. In any industrial operation the economics of running something flat out rather than throttled back are well understood.
The new ZAR55 million plant should be on stream by August 2010, and the company has accelerated the reopening of the underground mining operations by three months to ensure adequate feed. At the moment supply comes from the open pit and from stockpiles. The open pit provides about one third of the feed, and there is enough stockpiled ore to last for another two and half months. The need to supplement these feeds is why blasting on the company’s MG2 decline is already underway and why work on the MG1 decline will recommence in a few weeks.
The ferrochrome price now stands at around US$0.89 a pound. That’s enough for IFM to wash its face, but what it really needs to make proper money are higher volumes. That will happen over the course of the next year, but in the meantime the company is able to access the three year ZAR500 million term facility that was put in place by the Bank of China in July to help with the working capital requirements that will arise from restarting production from the second furnace and the underground mine. Having JISCO, one of China’s major steel companies, as a 29 per cent shareholder, doubtless helped in establishing that facility, especially as JISCO maintained its interest in the August placing.
International Ferro Metals has already announced that final results for the year to June 2009, due out on the 14th of September, will reveal a loss of up to ZAR500 million. That loss gives an indication of the intensity of what was a sharp, but hopefully short, recession for ferrochrome. At the current price of 58p the company is capitalised at £322 million, so investors who took stock in the placing at 44p will be pleased.
Even more pleasing to them will be the 88p price target that Numis, brokers to the issue, has placed on the shares for 12 months time. By then the company will be getting close to its capacity output of 267,000 tonnes a year, and in a market that should be a lot stronger. Although it would be rash to expect ferrochrome prices to return to the dizzy heights of the US$3.00 a pound that was seen in the second quarter of 2008, it would be reasonable to expect them to be a higher than they are now.
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