Ferro-chrome producers may have a harder time seeking higher prices for the third quarter than for the second, according to Outokumpu¡¯s first-quarter results announcement.

    The charge chrome benchmark price rose to $1.36 per lb for the second quarter from $1.01 per lb in the first, but ferro-chrome producers have already started calling for another large increase in the third quarter, supported by strong demand in the stainless steel industry.

    Though demand for stainless steel has improved this year, Outokumpu attributes this in part to restocking among its customers and increased investment activity, neither of which are generally seen as sustainable in the long term.

    ¡°The demand for standard grades of stainless steel has recovered to some degree in 2010 compared to late 2009,¡± the Finnish steelmaker said in its results announcement.

    ¡°The increased demand reflects both increases in distributors' inventories and improved demand from end-users. There are also initial signs of increased activity in investment-driven customer segments, but this has not yet materialised in major orders,¡± it added.

    Outokumpu's deliveries of stainless steel increased by 35% year-on-year to 333,000 tonnes in the first quarter, but the company is still only operating at around 75% of capacity, it said, and could not dismiss the possibility that volumes will fall back soon.

    ¡°It¡¯s far too early to say it¡¯s based on genuine need ¨C we¡¯ve got the orders, but I don¡¯t know if it¡¯s going to end-users,¡± a source from the company said.

    ¡°If it¡¯s just replenishing stocks then that will have to come to an end sooner or later; I can¡¯t say it won¡¯t continue, but if we can¡¯t see end-consumers asking for more, there is a clear risk,¡± the source added.

    Higher volumes and recovered base prices reduced the company's underlying operational loss to €32 million ($42.7 million) from €134 million in the first quarter of 2009, while operating losses were reduced to €22 million from €249 million last year thanks to raw-material related inventory gains.

    Those inventories could reduce Outokumpu¡¯s raw material needs if production does not increase significantly further in the next quarter, which is far from certain.

    ¡°We have a good idea of what the first half [of 2010] is all about, but the big concern is whether it will continue in the second half,¡± the source said.

    In the longer term, the company¡¯s raw materials requirement will diminish due to its decision to update the feasibility study on an investment that will double its ferro-chrome production capacity in Tornio, Finland to 530,000 tonnes.

    ¡°This recovery gives us the confidence to begin reconsidering our investment projects," ceo Juha Rantanen said in a statement.

    ¡°Expanding our ferro-chrome production was a very attractive project, which the financial crisis forced us to put on hold. As the worst of the crisis is behind us and ferro-chrome markets have become attractive again, it is time to take a new look at this investment,¡± Rantanen added.