CAPE TOWN, Feb 23 (Reuters) India's Tata Steel Ltd. plans to build a 120,000 tonne ferrochrome smelter in South Africa to be up and running by the end of 2007, taking advantage of projected growth in the sector.
Priyadarshan Roy, the head of ferro alloys and minerals at Tata, said on Wednesday the steel group would build a low-cost smelter for the alloy at Richards Bay, to spread its wings from its Indian base.
Tata's current ferrochrome production including other partners in India is about 180,000 tonnes per year, about 50 per cent of which is used locally and the rest exported.
''We are in an expansive mode, that's why we are putting up the 120,000 tonnes smelter in South Africa's Richards Bay... we are bullish,'' he told Reuters at an international chromium conference in Cape Town.
''We think demand from stainless steel producers will go higher over the next 15 years or so, barring the temporary drops in prices such as we experienced last year.'' Tata's Richards Bay project is in an environmental clearance stage, and hearings have already taken place. A decision on the environmental suitability was expected soon.
Roy declined to say how much the project would cost.
Once complete, the plant would boost Tata's total ferrochrome output to 300,000 tonnes per year, Roy said.
Like other producers planning to invest in ferrochrome plants in South Africa, Roy was confident the sector's weak prices would rise sooner rather than later.
''I see at least a 5 cent (per lb) price increase coming up in the spot and contract price in the second quarter,'' he said.
''With stainless steel sector balanced returning, and with projected growth in demand from the sector, I think there will be enough market for everybody,'' he said.
South Africa is the world's biggest producer of ferrochrome, whose prices nearly doubled in 2004 on supply difficulties, but have come under pressure as the market grapples with a surplus and production cutbacks by stainless steel producers. They use ferrochrome as an anti-corrosive element in steel.
First quarter contract prices dipped by 5 cents to around 63 U.S. cents per lb.
PRODUCTION CUTBACKS Tata's optimism was mirrored by India's biggest ferrochrome producer, Ferro Alloys Corporation Ltd. (FACOR), which said it was hopeful prices would tick up, but had been forced to slash production late last year to protect profits.
FACOR has five ferrochrome plants with an output of 12,000 tonnes a month of ferrochrome or roughly 290,000 tonnes a year, as well as a steel plant generating some 60,000 tonnes yearly.
''We cut production by about 25 percent since November last year. We are maintaining now about 7,000 tonnes a month from the usual 12,000 tonnes a month,'' Ashish Saraf, joint Managing Director at FACOR, told Reuters at the conference.
Saraf said FACOR recently discovered platinum in its mines and will mine about 4 tonnes a year of the precious metal.
He also said he hoped second quarter ferrochrome prices would stabilise, adding the main constraint at his plants was cost.
''We are definitely one of the more expensive producers because electricity costs in India are high, about twice that faced by our competitors in South Africa,'' he said.
(=6.120 Rand) REUTERS SD RK1816