Merafe feels pinch as ferrochrome falls

MERAFE Resources yesterday said that ferrochrome prices for the fourth quarter had dropped 12% to $1.10/lb from $1.25/lb in the third quarter.

The drop was largely due to the weakness in the steel market, Merafe said in a statement.

This is the second successive fall for the alloy, predominantly used in the steel-making process, after prices fell 7% in the third quarter of the year, after continued weakness in demand from steel makers in Europe and excess supply in China. The prices were calculated based on a benchmark set in Europe.

Merafe generates earnings from a joint venture with Swissbased diversified resources miner Xstrata, to run the world’s largest ferrochrome operation.

Yesterday’s announcement dashed hopes for Merafe’s and Xstrata’s plan to cut back production by participating in Eskom’s power buyback programme dur- ing winter months when electricity tariffs are higher.

The electricity buyback programme helped Merafe recently report a rise in first-half profit, despite production falling 21% in the six months ended June.

Merafe CEO Zanele Matlala said the company’s smelters were operating “at normal summer capacity of around 80% to 90%”.

However, Ms Matlala said the challenging environment made it difficult to make an assessment of the direction of the steel price. “It is difficult to forecast under the current market conditions. A number of factors play a part in determining the price. These include exchange rates, inventory levels, demand and outlook on nickel prices,” she said.

Ms Matlala said there were no plans to restructure the business in the event prices did not show signs of an improvement.

“There are no such plans but we continue to monitor the mar- ket and will take appropriate steps when the need arises,” she said.

Bloomberg reported yesterday that iron ore, a key steel ingredient and the commodity most leveraged to China’s growth, is heading for the longest bear market in 20 years.

Prices reached a record $191.90 a ton on February 16 last year and may plunge as low as $50 a ton before the middle of next year, according to Andy Xie, a former Morgan Stanley chief Asia-Pacific economist.

The commodity has not traded at that level since contract prices were set at $47 a ton in 2006.

“The price of iron ore is the canary in the coal mine,” Kieran Davies, chief economist at Barclays Capital in Sydney, said in a note. It is seen as an indication of the economic outlook for China and Australia.

Iron ore may average $96 a ton in 2017, compared with $167.60 last year, according to the median estimate of five analysts. With Bloomberg