Just real quick. What additional commentary, can you provide at this time with regards to 2018 silicon mill contract? So how far along versus prior years any color on mix versus floating contracts in North America and Europe. And then are you seeing any significant difference between the EU price discount versus the U.S., in your contracted terms versus what we can observe in the spot market?
Pedro Larrea, Ferroglobe’s CEO
We are right now somehow midway in the contracted season. So, we will continue to be contracting basically until the end of the year. We are in line with previous years. So, we have secured volumes that now represent — and by the way this is of course talking about silicon metal, the other products have different dynamics, when we can talk about that.
But talking about silicon metal, we have already secured volumes that are close to 60% of our expected total sales, both in Europe and the US. Now the proportion of fixed versus indexed is around nearly exactly 50-50, indexed and fixed price, and that applies both to Europe and the US. Just note that though that most of the indexed contracts corresponds to specific big chemical customers that have multi-annual contracts.
In terms of where prices are, both in Europe and the US, prices are I would say $0.05 above where the index is today. So, we are closing prices in the US that are above $1.40 in all call cases and in — $1.40 per pound. And in Europe, we are systematically closing all contracts above €2,200 per ton — per metric ton which represents around $1.20, $1.21 per pound.
Looking into 2018, you just briefly touched on that, but can you discuss some of the puts and takes regarding the production costs including electrodes, electricity and anything happening with coal or other major factors, I guess, what you would think maybe incremental deltas would be your headwinds there?
Yes. And we’re looking at — we talked about the electrodes situation several times already. And suddenly that is affecting costs significantly. And mainly that will hit costs from the second half of the year. And on our case fortunately, it will not have an impact on availability, but it will have impact on costs.
And we see that has been probably some tens of millions of dollars. So, it could be $10 million, $20 million just from the electrodes additional costs. And then there is some additional costs in power, in France, part of the French contract subject to market prices and those market prices are up in France so we are having some additional power price.
Coal is up right now, we will need to see how it evolves through next year to have a correct understanding of the full impact of that.
So, you mentioned the facilities in Argentina and South Africa are kind of underutilized here and it sounds like you’re planning to restart the full operations there in the near future. Can you maybe give us some thoughts around what near future means as far as the timetable is concerned? And then also if there are incremental costs associated with bringing those facilities online?
Well actually Argentina facility is starting up as we speak I would say and Polokwane which is the — if you remember — and in South Africa we have two running facilities which are Polokwane it’s 100% silicon metal and then we have eMalahleni which is running mostly on ferrosilicon and foundry products. The one that is — again Polokwane now is running with one furnace under our two furnaces that need to start. Those furnaces are being started in January and February I would say as soon as we can. Given the logistics from South Africa we won’t see the benefits of those volumes until Q2 next year. Thus, I would think we are just restarting as soon as we can.
In the case of South Africa entering our production base, it will actually have no impact on our average production cost because we have obtained or arranged a new power contract there in South Africa. With that new power contract and with exchange rate having moved slightly favorably, is now actually competitive vis-à-vis our European or North American plants. So, no impact in terms of production costs per ton
That’s helpful. And then I think you mentioned in the silicon-based alloys business, the sales volumes declined on some unexpected downtime in facilities. Can you mention may be what that downtime is referring to and if that’s been resolved and if you expect the volumes to rebound here?
Yes, it was two incidents that happened. One related to some electrodes breakages in Bridgeport in the US and that was certainly resolved. And the other was in our Dumbria plant in Northwest Spain and that was also a technical incident that is resolved. So, both are resolved and volumes would get back to normal levels this Q4.