Rising costs may fetter Samancor

johannesburg - samancor chrome, the world's second-biggest ferrochrome producer, may shut some of the south african operations it restarted this year as costs rise.

costs had climbed "dramatically" and electricity charges would rise further, chairman danko konchar said yesterday. samancor restarted about 75% of its capacity after suspending all output in december on weak demand.

eskom, which supplies about 95% of power in sa, has asked regulators to let it raise tariffs 34% this year after last year's 27,5% rise. ferrochrome producers pay about 20% on top of regular tariffs in winter, when power demand is higher.

samancor would reconsider its production level next month when winter tariffs started, konchar said. gains by the rand, trading at about r8,24/ now versus r10,19/ at end-january, were a "concern".

ferrochrome producers including xstrata, hernic and international ferro metals (ifm) suspended output as prices fell because of a slump in stainless-steel demand.



sa is the world's single biggest producer of ferrochrome, used to harden stainless steel.

the international stainless steel forum says global output in last year's fourth quarter was 30% down on the september quarter's at 4,8-million tons, the lowest quarterly figure since 2004.

ifm said last week it restarted 50% of its production capacity for three months to process stockpiles, but it was too early to decide on bringing it back permanently. with the cost of buying coke and eskom winter tariffs, ferrochrome prices would have to be higher than now to justify that, ifm said.

hernic restarted some production this month. ferrochrome quarterly contract prices fell 63% to $0,69c/ib this quarter, from $1,85/ib at end-2008.

prices might rise "slightly" or stay flat in the third quarter.