Bheki Mpofu
14 July 2008
Johannesburg — FERROCHROME producer Merafe Resources said on Friday it expected strong first-half earnings on rising metal prices, a forecast that saw the company's share price pull back from sharp declines earlier in the week.
Merafe's (MRF) shares climbed almost 10% in early morning trade on Friday against a 0,85% rise in the all share index after it said it expected earnings per share and headline earnings per share for the six months to last month to be about 500% higher than the 4c reported for the corresponding period last year.
The share slid 6,6% to R2,97 earlier last week on concerns its output would be flat until 2012 due to a lack of power. It closed at R3,30 on Friday.
"We see supply remaining flat until 2012 or 2013 when hopefully the electricity situation will have improved," Merafe CE Steve Phiri said . Power cuts are said to be costing the industry 250000 to 350000 tons a year in lost production.
Merafe forecast earnings to be even higher in the second six months as the European benchmark ferrochrome price for the third quarter of the year had been increased to $2,05/lb from $1,56/lb.
Ferrochrome contract prices have more than doubled in the past year on continuing growth in demand from the steel industry and restricted supply. European benchmark ferrochrome prices have increased from $1,00/lb in the fourth quarter of last year to $2,05/lb in the third quarter this year, an increase of 105%.
SA has 72% of the world's chromite ore reserves and 43,7% of chromite ore output.
Merafe said it expected full-year ferrochrome output from its joint venture with Xstrata to be about 1,5-million tons.
Full-year attributable ferrochrome production would be up 8% at 307000 tons, and the company predicted ferrochrome prices would remain strong this year, with further price increases expected.
Reuters reported that ferrochrome players said at a meeting in Johannesburg last week that prices for the metal might rise by more than 10% in the fourth quarter, in line with rising input costs and the scarcity of the commodity.
"While stainless steel production has slowed due to the traditional seasonal slowdown and some destocking, we believe this is a short-term situation and stainless steel production in Europe and China will recover and ferrochrome prices will remain strong ," they said.
Ferrochrome is a key ingredient in stainless steel production that prevents corrosion . It is supplied to European steel makers ArcelorMittal and ThyssenKrupp by producers in SA including Samancor and Xstrata.
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