Jeff McLaughlan marketing director of Xstrata Alloys and Mr Stuart Cutler from Glencore, a sole marketing agent for Xstrata, gave an interview to TEX Report Limited's pressman (Mr Saito) on June 15th 2012 at the Imperial Hotel in Tokyo. In answering questions from our pressman, Mr McLaughlan and Mr Cutler commented on the outlook of the world market of ferrochrome after ESKOM's power buyback agreements were expired, of which contents are summarized as follows.

The quantity of charge chrome South African smelters lost due to the planned curtailment under the agreements with ESKOM on its buyback of power was about 400,000 tonnes in total during March through May 2012. The impact of this curtailment was significant enough to make the world ferrochrome spot market fairly tight except in China. The tightness is considered to linger throughout this year, as the curtailment in South Africa will continue during winter in South Africa (June to August), meaning South African producers will be fully operational, if they wish, only from the Q4 (October to December) of 2012.

Background of ESKOM's approach for power buyback this time was that the power company was required to somehow cover power shortage caused by unexpected maintenance work at some of the power generation plants. It is uncertain whether similar arrangements to this year's agreements will be made by ESKOM next year also or not. The power shortage in South Africa is said to continue at least until 2015 when the first of two large scale power generating plants (at Medupi and at Kusile) will be in full operation. Medupi is due to start up in 2013 and Kusile in 2017, so there is always a possibility of power shortage anytime at least through until then.

Regarding the benchmark for the Q3 (July to September) 2012, it is a bit too early to make any comments about the status of negotiations. One very clear thing is that charge chrome stocks at the South African producers are very thin. Some producers are said to be looking for spot tonnage to make contractual deliveries. Those smelters who decided to resume charge chrome production despite the seasonal increase in costs from the higher winter power tariff are basically trying to accumulate stocks for long term contractual business. This means it is unlikely that any spot tonnage will be made available in the market during the coming several months. In other words supply and demand situation with regard to South African charge chrome will be normalized only in the Q4 (October to December) 2012.

Consolidation of the two stainless steel mills in Europe, i.e. Outokumpu and Inoxum, a stainless steel division of ThyssenKrupp could influence the benchmark pricing system in Europe. The system was initiated by the stainless steel mills in Europe who needed a pricing system to be referred to for calculating a surcharge for stainless steel products. Due to the consolidation, the party to negotiate with for the benchmark from 2013 may change to one of the other stainless steel producers.

• [Editor:editor]