But a strong currency combined with power costs constraints in top ferrochrome producer South Africa will lead to higher prices longer term, Mark Midgley, operations and marketing director at ENRC, said at the international ferro-alloys conference in Monte Carlo this week.
"Stainless steel (growth rate) is probably expected to double over the next 11 years, while chrome production or needs are expected to have to increase by around 50%," Midgley said. "If we look at the stainless steel market, the primary driver ... is certainly going to be China."
World production of chromite in 2008 was 24-million tons, according to the International Chromium Development Association.
Of the world's total production of chromite, more than 90% is estimated to be smelted into ferrochromium alloys.
Ferrochrome, used in stainless steel to prevent corrosion, is currently traded at about 88 US cents a lb, well below levels above $2,50 a lb in April last year.
Midgley said average costs of production for ferrochrome in South Africa over the first nine months of this year had grown to approximately 62 US cents a lb from less than 50 cents this time last year.
"This does show the effect of currency, and also power prices in South Africa, and the weighting that South Africa has on the overall average costs of production of ferrochrome in the world today."
About 3,4-million tons of ferrochrome was produced in South Africa last year out of a total of eight-million worldwide.
In South Africa, State-owned electricity firm Eskom is seeking large tariff increases to fund expansion.
Eskom, which provides 95% of the country's power, has been battling an electricity shortage since January last year.
Midgley said that if investment is made to allow for competitive power availability in South Africa, a 6 US cents rise per lb could be expected in the average cost of production.
"The floor price for ferrochrome is increasing all the time," he added. "What is interesting to note, is how close South Africa is getting to China (production costs)."
Chinese production costs for ferrochrome are currently over 70 cents per lb, said Midgley, whose company is the world's largest producer of chrome ore.
To combat the economic downturn, Midgley said ENRC, which currently has 90 years worth of resources, reduced year-on-year production in the first half of 2009 by about 29%.
"Another important factor affecting chrome demand is the availability of (steel) scrap -- and never more so than this year," he added.
"Over the last two years, there has been a 1,1-million ton decrease in the availability of scrap, as a result of the reduced economic activity."
"This has helped to increase chromium demand by around 320 000 t of ferrochrome this year," Midgley said.
"The average rate of scrap utilisation throughout the world has also fallen - from last year an average of 47% to an estimate this year of 42,7%. China is running at very, very low levels."
The ferrochrome industry had acted quickly in the fourth quarter of last year to cut production, with output capacity for the chromium industry now estimated at 75%, he added.
Edited by: Reuters
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