Merafe takes a knock as sales drop

MERAFE Resources, market leader in the ferrochrome market, managed to sell off a large portion of its inventory but could not avoid making losses.

In the six months ended June 2009 Merafe saw revenues halve from R1,63billion to R824million compared to the previous corresponding period.

Merafe chief executive Steve Phiri said yesterday the drop in earnings was largely due to a weak demand for ferrochrome, the company's primary product used in the manufacturing of stainless steel.

Merafe, which has a total capacity of 1,98million tonnes, operated an average ferrochrome production capacity of 30percent in the first half of 2009 in response to weak demand and growing stockpiles.

Equity analyst at Sanlam Investment Management Shoaib Vayej said a turnaround in commodity share prices had already begun, especially in industrial metals such as copper and iron ore.

"A lot of this turnaround however is not sustainable and a lot of it has gone straight to inventories and not necessarily from underlying demand," he said.

"If you look at ferrochrome, we are already seeing restocking. A lot of capacity is coming back on stream."