Merafe reports on FeCr markets, achieved profit of R1 049 million
Global stainless steel production decreased by 2%1 year-on-year during H1 2023 as growth in China and India was more than offset by a slowdown in the rest of the world. Europe experienced a 9%1 decrease in melt rates while the USA saw a 14%1 decline. Indonesia, which has been a significant source of growth in the past years, experienced a 19% decline in production during H1 2023. Surplus ferrochrome supply was directed to China due to a lack of demand elsewhere in the world.
Chrome ore prices remained elevated during H1 2023 due to a lack of supply growth and continued logistics constraints out of South Africa, which represents over 90%3 of global seaborne trade. Regions outside of South Africa have seen no meaningful supply growth despite elevated prices.
The average European ferrochrome benchmark price was US cents 1612 per pound in H1 2023, which represents a decrease of 2%2 from the average price for the six months ended 31 December 2022.
Outlook
Some key trends that are shaping the environment in which Merafe operates are:
• Economic uncertainty that is characterised by rising inflation, interest rates and trade tensions. This uncertainty is making it difficult for businesses to make long-term plans, and it also leads to volatility in the markets.
• The shift to a more sustainable economy. The global market is increasingly focused on sustainability, and businesses are under pressure to reduce their environmental impact. The Venture has embraced this initiative and incorporated sustainability initiatives into strategic plans. Its green energy initiatives are a key part of these plans.
Technological innovation has a major impact on the global market, as new technologies are being developed that are changing the way we do business. For our business, the key benefits of innovation are efficiencies and the safety of our employees.
Merafe business is not immune to the impact of these trends which are firmly on management’s radar. Local challenges, which include power shortages, energy costs and logistics constraints continue to be monitored by the Venture and mitigated in the best ways possible.
Merafe expects the second half of 2023 (“H2 2023”) to be softer on a weaker market outlook. Downward pressure on chrome ore prices, which have started coming down, is expected to translate to lower ferrochrome prices. Given the forecast inflationary pressures, its margins are at risk of being squeezed in H2 2023.
The Venture plans on producing ferrochrome only at the Lion smelter over the three-month high electricity demand winter season, a period of elevated power prices. This will assist with managing costs and lowering inventory levels as sales units are expected to be drawn down from inventory.
Merafe remains cautious in its approach to the remaining six months of the year and will continue to focus on efficient operations, cash preservation, cost control and efficient capital allocation.
