Stainless steel maker Outokumpu said on Tuesday it would invest 420 million euros ($650 million) to double production at its ferrochrome plant in Tornio, northern Finland, news that lifted its shares.
The total capacity after expansion would be 530,000 tonnes and is scheduled to be available during the first quarter of 2011, the company said in a statement.
Shares in Outokumpu opened 9.5 percent higher on Tuesday and were 5.7 percent up at 30.8 euros by 1305 GMT, against a slightly firmer DJ Stoxx basic resources index.
Chief Executive Juha Rantanen said Outokumpu estimates that with current prices the expansion will bring additional annual operating profits in the order of 200 million euros.
The investment will support Outokumpu's strategy realisation, maintain cost leadership, secure raw materials and capitalise on our own chromium asset, Rantanen said in a statement.
Glitnir analyst Jarkko Soikkeli said the decision was good news, as the price of ferrochrome has soared due to tight supply from South Africa, the world's biggest producer, due to power shortages.
If they (Outokumpu) produce it themselves, they will get all the benefit, Soikkeli said.
Outokumpu said it had estimated that with the new capacity in place a 5 U.S. cents/pound increase in the contract price of ferrochrome could add 20 million euros a year to the group's operating profit, whereas without the extra capacity it would have been half that.
It is clearly a good business if the price of ferrochrome remains at current levels, and even if it didn't it can be very profitable, eQ Bank analyst Erkki Vesola said.
It seems the soar in ferrochrome prices has surprised all, he added.
The expanded ferrochrome capacity will make Outokumpu self sufficient in chromium, the firm said. (Additional reporting by Julie Breton and Sami Torma, editing by Will Waterman)
(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.