LONDON (Metal-Pages) Turkish chromite miner and ferro-chrome producer YILDIRIM Group (ETI KROM) has halved its production of chrome ore and expects Tukey's exports next year to be 50% below the volumes of 2008 if prices remain at current levels.

However, the Turkish group which since September has been forecasting an extremely over supplied chrome ore and ferro-chrome market for 2009, said it sees signs of bottoming by March 2009 after chrome ore and ferrochrome headed for its biggest annual price drop at the spot market in their histories.

Yildirim Group's President & CEO Robert Yuksel Yildirim welcomed production cuts by ferro-chrome producers as production levels are finally falling in line with demand from the steel industry.

The prices will start to rebound as output drops and demand grows  for chrome ore and ferro-chrome, said Robert Yuksel Yildirim.

"The market was irrational on the way up and it will be irrational on the way down. Central banks slashing interest rates, governments are pumping money into the system to heal the credit crunch and recession a reality in major economies from Japan to Europe, and Europe to USA, deflation remain a danger. Under such circumstances we all know from past experiences that inflation rates will probably touch the zero line at G-7 economies by the middle of next year", Mr. Yildirim commented about the global economic outlook.Commodities markets are heading for the biggest annual drop in more than two decades as the US, UK, Japan, Germany and the 15 European Euro zone nations slip into a recession. "Although most of the price declines at commodities market have already occurred, prices could drop further in a slower pace before hitting the bottom of the cycle. Ferrochrome and chrome ore may bottom out in the first quarter of 2009 (probably by March). This will support the raw material prices to start rising again, but in a slow pace from Q4/09 and onwards", he added.

On the other hand, the mining costs in chrome ore mines are increasing due to the high entering barriers, so the industry is challenged from a supply stand point if the prices will remain at current levels, he added. New declared capex projects all around the world will be forced to be delayed due to very low demand and extremely thin profit margins. Regarding the long term outlook Mr. Yildirim underlined the dangerous impact that could result in delays in expansion plans in the crude steel, oil-gas and power supply and raw material industries. "The world could be facing a shortage of raw materials more acute then previously thought, partly because of many companies are shelving their expansion plans.

"We will see that Turkey's total chrome ore exports could be lower by about 50 % down to below 1.0 million tonnes in 2009 compared to 1.85 million tonnes in 2008 if these prices would remain at levels of around 200 USD/dmt on CFR China basis for 42 grade hard lumpy materials during 2009", Yildirim said.

"China is currently the weakest commodity market, but the Chinese have already started to understand that iron ore, manganese ore, FeCr and chrome oreprices cannot go down further," he added. "We can see a gradually increased activities of Chinese traders in the market buying chrome ore from main Chinese ports in small quantities at very low prices which are currently close to the mining costs. Major Turkish chrome ore mining companies have already stopped producing of ore until May 2009 since the current low prices and winter conditions are forcing them to shut down their operations", Mr. Yildirim said. ETI KROM has already decided to delay any of its future capital expenditure projects for ore mining until 2011 and has already reduced output by 50 % at its chrome ore mines in Turkey.

"We'd been pushing to produce marginal volumes because we earned such great margins on them during the last three-year rally in prices that sent chrome ore and FeCr to a record in May 2008", Mr. Yildirim said. Now that prices have come down very sharply, ferro-chrome producers are going to curtail marginal production by maintaining the supply/demand balance. ETI KROM has revised its forecast for global HC FeCr/Charge chrome production figures in 2008 are recently revised to 7.1 million tonnes from 8.4 million tonnes. "This revised figure is a strong sign that the industry followed our warning in October during a conference in Arizona, USA and followed the capacity reduction of stainless steel mills by immediate cutting of FeCr and chrome ore production dramatically", he said.

However, the 7.1 million tonnes figure of 2008 will be just 10 % below the ferro-chrome production level of 2007, he noted. This level remains with the new production cuts observed by the major consumers like NSSC, POSCO, Baosteel, TISCO, TK, Acerinox and ArcelorMittal. Thus, the supply of the ferro-alloy will be balanced with the demand of stainless steel mills by end of the first quarter 2009.

Yildirim Group expects stainless steel production in 2009 to be around 25.0 million tonnes, down by about 2.0 million tonnes compared with that of 2008.

While ferro-chrome production cuts lead by South Africa, China, India, Russia, Kazakhstan, Turkey and Sweden helps to maintain the supply-demand balance, it seems still not enough to stabilize the prices, the president and CEO said.

  "Before starting of price negotiation for Q1/2009, major producers of South Africa and Kazakhstan (ENRC, Xstrata, Samancor, Hernic, Assmang, IFM) finally responded by temporarily suspending of their FeCr production against falling demand of Asian, US and European stainless steel mills", Mr Yildirim noted.

"Both major consumers and producers are still holding stocks, and neither side needs or wants to lock in contract sales or purchases quickly for Q1 nowadays while the markets are still so volatile. Therefore, major stainless steel and South African FeCr producers will unlikely to settle for South African FeCr benchmark price agreement for Q1/2009 before the Christmas holiday. We will not be surprised that the negotiations for some stainless steel mills for the first three months of the year may be written off altogether because of a weakening market and high stock levels. However, a quick settlement will accelerate the revival of markets," Mr. Yildirim said . In any case, He believes that the South African FeCr producers expect to settle in a three-digit settlement for the Q1 SA benchmark price.

Meanwhile, the prices of chrome ore were affected more than the prices of FeCr during the last two months due to sharp reduction of ferro-chrome production in China. Mr. Yildirim declined to make any clear comments about future chrome ore prices, but he admitted that current levels of chrome ore prices are reaching to the bottom soon. "Just recently oil, iron ore, steam coal, coking coal, steel scrap, FeMo and nickel prices have started to increase again slightly after getting nearly to the bottom. 190 - 200 USD/dmt for 42 grade hard lumpy Turkish ore and 240 -250 USD/dmt for 48 grade Turkish chrome concentrate on CFR China basis is the rock bottom level for many Turkish chrome ore exporters. Sellers will not be able to continue to sell lower than these levels," Mr. Yildirim said.

Yildirim Group reiterates that it is currently operating at 50%  capacity high carbon ferro-chrome production capacity in Sweden and Turkey whilst ETI KROM has halved its chrome ore production in Turkey. "We have no immediate plans to increase our productions because the market is still oversupplied. Both of the stainless steel and FeCr industries will find the right way to support and accelerate the recovery. If the market would need some further production cuts at FeCr and chrome ore, we are ready to execute this to construct the market in positive way," Mr. Yildirim stated.

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