Japan's top stainless steel maker said on Monday two key South African suppliers had agreed to a 7 percent reduction in the January-March price for ferro-chrome to the lowest in two years as domestic producers slash output.
The price cut to 68 cents a pound for the first quarter of 2006 was the third consecutive quarter-on-quarter cut and the lowest since the January-March quarter of 2004, when it was at 62 cents.
The price for the current quarter has been set at 73 cents.
The latest term price is also 18 percent below a record high of 83 cents in April-June.
"We've told the suppliers that it was natural to lower prices when domestic stainless steel makers were cutting output," said an official of Nippon Steel & Sumikin Stainless Steel Corp (NSSC). "But the suppliers were reluctant to cut the price because of firmness in the South African rand," he said.
NSSC and the South African suppliers - Xstrata Plc, the world's biggest producer, and Samancor Chrome, another major producer - conduct a review each quarter to set a term price for Japan.
The Japanese price is seen as an important benchmark in European markets, industry sources said.
NSSC, the top Japanese stainless steel producer, is a joint venture between top Japanese steel maker Nippon Steel Corp and third-ranked Sumitomo Metal Industries Ltd formed in October 2003.
Ferro-chrome is mainly used as an alloy in stainless steel to prevent corrosion. More than 80 percent of the world's ferro-chrome is used in the production of stainless steel.
Backed by robust demand from the automobile and electronic sectors, the price had risen steadily to April-June as the market faced supply shortages.
But ferro-chrome prices have been dropping as stainless steel makers, including NSSC, have been reducing their output amid rising inventories, industry sources said.
The official said, however, NSSC may not be able to boost domestic sales despite the lower ferro-chrome price because a weaker yen would make it difficult for the company to lower domestic prices.
The average value of the yen against the dollar has weakened by around 6 to 7 percent in December from around 112 yen when the term price was previously reviewed in September and October, the official said.