JOHANNESBURG (miningweekly.com) – JSE-listed ferrochrome producer Merafe, which suffered a R152-million loss in the year to December, is bullish on the outlook for ferrochrome in 2010.

The company's declaration of its maiden dividend of 2c a share, totalling R49-million in cash, was indicative of its confidence in the future.

Merafe CEO Steve Phiri said on Tuesday that ferrochrome stock levels were at historic lows that were equivalent to only ten-weeks of consumption, compared with 24 weeks in 2008.

The market was thus not oversupplied, at a time when demand was poised to increase by 6% a year over the next five years.

Merafe is in a chrome joint venture with the London-listed Xstrata, the world's largest ferrochrome producer.

He said that ferrochrome prices, now at US103c/lb, were expected to rise in 2010, with the Merafe marketing team in Asia at the time of going to press to negotiate second-quarter prices.

He said the new prices would only be announced once the prices were finalised in all regions, which he anticipated would be by the end of March.

Supply would be additionally constrained owing to additional ferrochrome projects not going ahead in South Africa, which, he said, accounted for more than three-quarters of chrome reserves.

"If there is any serious growth in ferrochrome capacity, it has to come from South Africa, and there is nothing that is coming through, courtesy of Eskom," Phiri added.

The absence of electricity availability, coupled to limited access to finance for large capital projects, meant that there was unlikely to be any additional meaningful production in the next three years, which would put pressure on the supply side of the market and result in supply continuing to be tight until 2013.

"That's if Eskom comes on stream in three year's time," he added. Eskom is building the large Medupi and Kusile coal-fired power stations.

The meeting was told that many ferrochrome projects were linked to Medupi and Kusile coming on stream, as well as prospect of independent power producers possibly entering the fray.

There was likely to be a prolonged demand for ferrochrome, owing to China's wanting to produce ten-million tons of stainless steel a year, and maintaining that level going forward.

As China alone was able to consume all the company's production, if demand from the rest of the world increased, there would be serious supply shortages, "and we are seeing indications of that".

Merafe was consequently going all out to improve its efficiencies.

The new chrome recovery plant that the Xstrata-Merafe joint venture planned to build with platinum company Lonmin – to treat current upper-group two (UG2) tailings from concentrators at Lonmin's Marikana operations – would add 1,5-milllion tons of low-cost UG2 chromite ore a year from 2011.

"We are quite optimistic and bullish for 2010," Phiri reiterated.

Merafe halved its ferrochrome inventory in the period, reduced its net financing costs by 81% and has R463-million cash on hand.

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