New York (Platts)--21May2008

US ferrosilicon prices surged again this week on continued fears over the
security of Chinese supplies, market participants said Wednesday.
Some large traders in the US have either stopped offering spot or
long-term forward material altogether, or will only offer ferrosilicon if it
has either been landed in the US or is at least on the water and on its way,
sources said.
"Unless it's on a boat, I won't sell it," said one trader. "Before this,
you could and offer the bigger volumes, but that's a huge risk now," he said.
He was worried that the constantly rising ferrosilicon prices out of China
would mean that previously agreed contracts would not be performed on and
material would not get shipped.
"Now if you are afraid of performance, you pull in your horns and you
don't do it," the trader added.
A second trader concurred, saying that ferrosilicon was "a good example
of people being lulled into a false sense of security. People didn't expect
this kind of volatility." He said that traders and consumers alike had been
caught out. "Everyone's caught on this and the Chinese are reneging left,
right and center," he added.
He said that buying ferrosilicon was very risky. "There are a good amount
of people who are unsavory and there are some who are credible," he said. This
made the difference between whether contracts were honored or not, he said.
The second trader said that he knew "for certain" that 1,000 mt of
third-quarter material had been booked by a consumer at $1.36/lb FOB
Pittsburgh and said that the next piece of business was likely to be closer to
$1.45/llb. The trader said that he had seen offers as high as $1.53 for
standard grade ferrosilicon. He predicted that prices could rise to $2/lb
within the next four weeks.
But a third trader said that he had sold 100 mt for Q3 delivery at
$1.36/lb.
A fourth trader said that Chinese ferrosilicon prices of around $2,100/mt
FOB that were being talked about would equate to a replacement cost of
$1.39.lb FOB Pittsburgh, duty-paid.
A consumer said that he had been led to believe that ferrosilicon could
get above $1.50/lb, while another consumer agreed prices were higher, but
declined to put a range on the market.
Despite the high offers, a seller of Venezuelan material indicated he
would be willing to offer spot material at $1.35/lb but said that prices were
likely to go higher.
European prices have been trading at a premium to the US this year,
although the US price appears to be close to catching up with the levels
experienced on the eastern side of the Atlantic, sources said.
As a result of the price differential, an arbitrage opened up that
resulted in Venezuelan ferrosilicon that would normally have found a home in
the US being sold in Europe, instead. Now traders believe that arbitrage
opportunity has closed and more Venezuelan material will be sold in the US.
The surge in ferrosilicon prices in the last few weeks has prompted US
silicon metal producer Globe Metallurgical to consider switching one of its
furnaces at its Beverley, Ohio plant over to ferrosilicon production for the
second half of this year.
Ferroalloys traders speculated that Globe was trying to come to some
agreement with its secondary aluminum customers on silicon to deliver less
tonnage to them in 2H 2008, given the downturn many are experiencing because
of the slowdown in automotive and construction, in order to allow a switch to
ferrosilicon production. Traders also said that Globe maybe looking for one or
two steel mills to lock-in and agree to buy the bulk or all the ferrosilicon
that Globe might produce in 2H 2008.
However, secondary aluminum producers said that they were not engaged in
any such negotiations with Globe, but conceded being long on silicon metal.
"We're long on silicon just like any other smelter," said one secondary
aluminum consumer. But he added that he did not believe a switch by Globe of
one furnace into ferrosilicon production would make much difference to the US
silicon metal market.
Traders speculated that Globe could make as much as 30,000 mt of
ferrosilicon in 2H 2008 if it made the switch, depending on how much power it
loses during the summer months, as the Beverley, Ohio plant is on an
interruptible power supply.
Meanwhile, a source close to Globe, said: "If prices continue to move up
on ferrosilicon, then it makes sense to do it," he said.
The Platts assessment for US, free-market 75% ferrosilicon rose to
$1.35-1.45/lb on Wednesday from $1.20-1.25 a week earlier.
--Anthony Poole, anthony_poole@platts.com