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They're calling $5 per pound spot ferrochrome for mid aprilFerrochrome hits new all-time highs above $4.00/lb, supply picture worsens By Martin Hayes - Senior Correspondent minor metals London, 05 March 2008 - Ferrochrome jumped some 21 percent in Europe this week, as strong steelmaker demand combined with a lack of supplies to maintain a relentless 2008 uptrend, and low-carbon prices rose above the $4.00 a pound level to a new all-time high. Low-carbon ferrochrome, around $3.50/3.80 a week ago, was indicated at some $4.25/4.50, while high-carbon rose to some $2.30/2.60, versus levels of $2.20 last week. "It is a desperate situation -- demand is strong, and supply is affected by the South African situation (producer force majeures due to power problems)," a trader said. A series of force majeures in major producer South Africa have underlined how tight the market's supply/demand picture is, and prices, already in uncharted territory, may go much higher yet -- traders are talking about levels of $5.00 a pound by mid-April. "It is very difficult to get material at the moment, and as regards to South Africa there may be further problems to come," another trader said. The supply crisis has arisen because South Africa's Eskom, the state-power supplier, has been rationing nationwide power to its industrial customers. Miners have been restricted to 90 percent of the electricity they would normally need, which has hurt production. Prices of other alloying materials, such as vanadium, as well as major base metal aluminium, have also soared as a result. The rally was kicked off in early-February, when Xstrata Alloys, a unit of global mining giant, Xstrata plc, declared force majeure to its ferro-chrome and vanadium customers. Then last week, Merafe Resources declared force majeure on ferrochrome production at its chrome venture with Xstrata Plc. The venture has a total managed capacity of 1.96 million tonnes of ferrochrome. Additionally, Samancor declared force majeure on intermediate-carbon ferrochrome shipments, although this was due to an accident at the Ferrometals complex in the Mpumalanga province. The plant may be closed for some months. INCREASES EXPECTED FOR QUARTERLY CHARGE CHROME CONTRACTS The current strength is expected to see a further sharp increase in quarterly charge chrome contract settlements for the second quarter. These rose from $1.00 a pound in the final quarter of 2007 to $1.21 for the first quarter of 2008. "We now assume a Q2 ferrochrome price settlement of $1.50 -- previously it was $1.40," Simon Toyne of Numis said. The market will be underpinned by increased tightness, as demand is growing in excess of six percent a year, while supply is constrained by the lack of power availability in South Africa, he added. "At some point it (the market) will go back, but at the moment it looks like a one-way bet," the second trader said. |
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