Johannesburg — LONDON-listed and South African-based ferrochrome producer International Ferro Metals (IFM) has been building its inventories to take advantage of recent higher ferrochrome prices, it said yesterday.

SA is the largest global producer of ferrochrome, which is used in making stainless steel and, like other commodities, suffered a sharp fall in demand and pricing in the global financial crisis.

In response, local producers mothballed production and only started to bring substantial capacity back on stream in the second half of last year. IFM restarted one of its furnaces in April and its second furnace in August, and it is now operating at the maximum capacity possible using 90% of previous electricity usage imposed by Eskom in 2008. It is also building a co-generation plant to convert waste gas into electricity, which will supply 11% of its power requirements.

The latest price settlement for ferrochrome for the first quarter of this year, at 1,01/ lb, was slightly below the fourth quarter price, but well above the third quarter.

Numis Securities analyst Mike Stuart estimated in a note to clients yesterday that the next settlement could be at 1,15/lb, while IFM CEO David Kovarsky suggested it could be between 1,20/lb and 1,30/lb.

The price was being driven upwards by an increase of production by stainless steel makers to meet consumer demand.

In the six months to December IFM produced 94715 tons of ferrochrome, almost five times as much as in the first half of the year and slightly more than the 90759 tons produced in the second half of 2008. But sales were a lesser 70936 tons, as the group built up its inventory to 32504 tons at the end of December.

Kovarsky said the stockpile was now being sold down. IFM sells about a third of its production on long-term contracts and was trying to bring this up to 50%. Half of the group's customers were in China and Taiwan, the other half in North America and Europe.