Johannesburg — FERROCHROME prices are expected to recover in the course of next year although contract prices agreed on with major stainless steel buyers in Europe for the March quarter were slightly weaker than the December quarter.

SA is the world's biggest producer of ferrochrome, used in stainless steel manufacture. Major local producers include the Xstrata-Merafe joint venture, Samancor Chrome, Hernic Ferrochrome, Assmang and International Ferro Metals (IFM).

Two weeks ago, Merafe announced the European benchmark ferrochrome price had been settled at 1,01/pound for the first quarter of next year. The price was US2c lower than the 1,03/pound settlement in the fourth quarter of this year, but the fourth-quarter price had shown a strong recovery from the 0,89/pound agreed on for the September quarter.

Hernic Ferrochrome CEO Tetsu Kotaki recently told Bloomberg current prices were not sustainable for South African ferrochrome producers because of the strength of the rand against the dollar, which made it difficult to cover input costs.

Next year , South African ferrochrome producers will also face higher electricity prices, a major cost because ferrochrome is made in energy-intensive furnaces. However, the Xstrata- Merafe joint venture has been investing in Premus, a new technology which is more energyefficient than conventional production, and should help to cushion it against price increases.

IFM CE David Kovarsky said yesterday that the latest price settlement had reflected recent weakness in the ferrochrome spot price because of slowing production in China and excess stainless steel stocks in the US and Europe.

But since the price settlement was announced, there had been a firming of the ferrochrome price in China and the market was likely to stabilise after the Chinese new year at the end of January.

IFM forecast in November that stainless steel production, and ferrochrome prices would increase steadily throughout next year.

Both IFM and Merafe's share prices have reflected growing optimism, with Merafe rising above 140c this week from below 120c three weeks ago, and IFM, which is listed in London, at 28,5p from a recent low of 23,9p.

In a presentation to investors in November, posted on its website, Merafe said leading Chinese stainless steel mills, which had increased utilisation to almost 100% in the second and third quarters of the year, eased production by 15% in the December quarter.

Global ferrochrome capacity utilisation by September was 75% and for the whole of this year ferrochrome supply was expected to be about 7-million tons, of which 5,5-million tons would come from current production and 1,5-million tons from inventories.

Total crude stainless steel production next year was forecast at 29,6-million tons from 26,1-million tons this year, which would spur ferrochrome demand to 7,4-million tons from 6,8million tons, Merafe said.

Merafe also forecast that there could be some consolidation in the ferrochrome industry, after International Mineral Resources raised its stake in Samancor Chrome to 67%.

Recently, Finnish metals group Ruukki said it planned to increase its ferrochrome smelting capacity in SA, based at Mogale Alloys, to about 400000 tons a year. It also entered into an agreement to buy Sylvania Resources to advance its strategy of diversifying into treating platinum group metals . Although the Sylvania agreement was cancelled, Ruukki said it would continue to pursue this strategy as its existing ferrochrome furnaces could be modified to treat other minerals, including platinum group metals.