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AS SOUTH Africa regained its top spot as the world’s biggest ferrochrome producer, Merafe Resources, the junior partner in the Glencore-Merafe Chrome Venture, said the venture was well placed to take advantage of improved demand and reduced output in the country.
Merafe, which is a 20.5% shareholder in the venture, the single largest producer of ferrochrome, noted that four out of seven ferrochrome producers in SA had halted production. Ferrochrome prices fell to 2009 lows during the first quarter of this year when the European benchmark price dropped to $0.82/pound (lb).
Global stainless steel output, the primary source of demand for chrome, was expected to grow by 2.8% this year and 3% next year, "indicating increased demand prospects for ferrochrome", Merafe said.
During the first half of the year, global ferrochrome output fell by 4% to 5.2-million tonnes, with output in China falling by 17% compared with the same period a year earlier.
"This resulted in SA reclaiming its position as the largest ferrochrome producer in the world," Merafe said.
Global ferrochrome demand fell by 8% to 5.1-million tonnes.
With the outlook for the stainless steel market and reduced output along with the venture’s low-cost production, Merafe said the venture remained "well positioned to take full advantage of this renewed positive demand outlook and market sentiment".
Ferrochrome prices have bounced up to 98c/lb in the third quarter.
The venture has installed capacity of 2.3-million tonnes of ferrochrome.
In the first half of the year to end-June, Merafe reported a 9% increase in revenue to R2.4bn as the 29% weakening of the rand offset weaker ferrochrome prices.
Merafe derived 11% of its revenue from selling chrome ore to China.
Merafe reported a more than halving in profit to R57.3m from R124m a year earlier, with depreciation of R146m, financing of R31m and taxation of R21m having an impact.
Cash in Merafe stands at R412m compared with R309m a year ago.
Merafe declared a total dividend of R20m equating of 0.8c per share.
"We remain on track to achieving our strategy of reducing Merafe debt and paying stable to increasing dividends in the short term," the company said.
"With no major expansionary projects in the pipeline, it is expected that from 2018 onwards free cash flow will be applied mainly to returning cash to shareholders in the form of dividends and/or share buy backs," it said.
Merafe has reduced its total debt of R479.5m at the end of June to R409.5m by the time of reporting results on Monday.
SA was the source of 78% of China’s chrome ore, up from 73% a year ago. "This is representative of China’s increased reliance on South African exports for chrome ore," Merafe said, adding that China had an estimated 1.3-million tonnes of chrome ore stocked at its ports by the end of June, nearly 8% lower than in January.
Merafe shares have gained 31% in 2016 and were trading 1% higher on Monday at 89c.
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- [Editor:sunzhichao]
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