IFM sees ferrochrome prices above $1/lb in Q4

Ines Schumacher | Mon, 14 Sep 2009 08:38

[miningmx.com] -- LONDON-LISTED ferrochrome producer International Ferro Metals (IFM) took a beating in its financial year 2009, but is positive about the future of the company for the coming months.

"We expect a ferrochrome price of $1.05 per pound in Q4 2009 in line with market opinion," IFM chief executive David Kovarksy said.

He said ferrochrome prices are set to rise on the back of tightness of international supply and pressure on costs in South Africa.

The company's two furnaces will be at full production to take advantage of the markt upturn by the end of this quarter.

IFM made a loss before tax of R456m compared with a net profit of R630m in the comparable period. Its production halved from 205,000 tonnes of ferrochrome in FY 2008 to 110,000 tonnes in FY 2009.

This comes after the company shut down production in a trying economic environment in Novermber 2008. The company restarted its first furnace in April and its second one in August this year.

It was a financial year of highs and lows for IFM as it experienced the highest ever recorded price for ferrochrome of $2.05/lb in its first fiscal quarter (Q3 2008) and record production. The price for the following quarter was set at $1.85/lb when a severe contraction in demand caused a marked difference between contract prices and spot prices.

This fall in demand translated to a price of $0.79/lb and $0.69/lb in Q1 and Q2 2009 respectively.

The price strengthened to $0.89/lb in Q3 2009 on the back of a global pick up in demand driven by destocking and ultimately restocking. Another driver is the recovery of the stainless steel sector in China.

Kovarksy said the demand is China is sustainable. "There may be slight overstocking, but that shouldn't affect overall demand," he said.

Market analysts estimate ferrochrome stocks were at 10.4 weeks of demand at June 2009 compared to 25.4 weeks in December 2008.

"We are confident that the recent resumption in demand and stronger ferrochrome prices are sustainable and IFM is back on track to take advantage of this with an improved cost base," Kovarsky said.

In July, IFM secured a R500m three year working capital facility with the Bank of China.

"If the financial year 2010 is in line with our expections, we won't need to draw down on the facility. It all depends on ferrochrome prices," Kovarsky told Miningmx.

The company proceeded to raise R284m through a placing of 51 million ordinary shares in August. The proceeds of the equity issue are being used to fund the construction of a co-generation plant that will untilize furnace off-gases to produce about 11% of the company's electricity requirements.

This will allow the company to operate at full capacity despite Eskom's power constraints.

Numis Securities maintains its buy recommendation, after the loss reported on Monday was less than expected.

"We believe that IFM is now well positioned to take advantage of improving conditions in the ferrochrome market," Numis said in a metals and mining report.