Xstrata, the world’s biggest producer of ferrochrome, will suspend six of its furnaces in an attempt to prop up the price of the alloy used to make stainless steel.
It is the latest example of a drop in consumer demand for products such as stainless steel countertops and cutlery that is rippling back through the commodities production chain and curtailing activity at mines and smelters. The phenomenon has recently been seen in iron ore, nickel, zinc and other base metals. Its spread to ferrochrome comes as industry veterans warn of a price collapse for the alloy, most of which is produced in South Africa. Last week Danko Konchar, chairman of Samancor, a South African ferrochrome producer, warned the industry needed to cut production by 70 to 80 per cent to counter weak stainless steel demand and the stockpiling of South African chrome ore in China.
John Meyer, mining analyst at Fairfax, said Mr Konchar’s estimate was extreme. But he noted ferrochrome is marginally more vulnerable to a drop-off in manufacturing because stainless steel is a premium component that is substituted with cheaper alloys during economic downturns.
Peet Nienaber, chief executive of Xstrata’s alloys division, said the company and its black empowerment partner Merafe Resources were “acting responsibly and decisively to cut back production during a period of short-term demand weakness”. “We will continue to respond promptly to market conditions when necessary,” he added.
Six of Xstrata’s 20 furnaces will be suspended indefinitely, cutting its ferrochrome production capacity by 29 per cent and taking 500,000 tonnes off the market annually, including 80,000 tonnes in 2008.
The European benchmark price of ferrochrome fell from $2.05 a pound in the third quarter to $1.85 in the fourth quarter. On October 24, African Rainbow Minerals also shut two ferrochrome smelters, which it said would reopen when demand recovered. Xstrata shares, buoyed by expectations of a Chinese government infrastructure stimulus package, rose 123p to close at £11.91.
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