* Strikes cut UG2 ore output by 150,000-250,000 T - traders
* Reduced output stems four-month ferrochrome price decline
* Longer-term plans to produce more UG2 chrome ore
By Harpreet Bhal and Silvia Antonioli
LONDON, Sept 26 (Reuters) - The impact of South African mine labour unrest has spread beyond precious metals to UG2 chrome ore, a by product of platinum and key ingredient in stainless steel, with output cuts putting a floor under prices after four months of decline.
In recent months, violent labour unrest over pay has disrupted production at some of the largest South African platinum mines, including those owned by Anglo American Platinum , Lonmin and Aquarius Platinum.
South Africa accounts for more than 80 percent of global platinum supply, but it also produces over half of the world's chrome. Both markets are in global surplus, but uncertainty created by production cuts has induced fresh buying.
Although disputes at some south African shafts have been resolved, strikes are in full force at others and continuing to spread, raising worries that prolonged disruptions might hit production further.
So far strikes have cut output of UG2 chrome ore by about 150,000-250,000 tonnes, market players said, a significant enough amount to have an effect on prices, even in an over supplied market.
"The strikes in Lonmin have removed about 100,000 tonnes a month of UG2 which is no small amount," said a European ferrochrome trader, adding an additional 50,000-80,000 tonnes have been cut due to strikes at other mines.
The reduced output has stemmed a 4-month price decline in ferrochrome - the processed product of chrome, with projections now looking at rising values even though economic slowdown has depressed demand from stainless steel makers, industry players said.
Prices of high carbon ferrochrome in Europe stand at around $1.02-1.10 per lb in Europe, with low carbon material selling at between $2.05 and 2.10 per lb.
Prices have fallen by around 10 percent in the last four months.
"There is an output reduction although it is difficult to assess how much; this has already been priced in platinum but not in the chrome and ferrochrome yet," an industry source said.
"Producers can still rely on stocks for now but these stocks are not been replenished and when the Chinese come back to the market after the National Day holiday next week prices will likely rise especially if the problems in South Africa continue."
He estimated that ferrochrome spot prices will move up, pushing the European benchmark price up $0.05-0.10/lb to about $1.20-1.30/lb in the first quarter next year.
Adding to supply concerns, works at some chrome mines, including the Xstrata's Kroondal mine and the Samancor Western chrome mine were also briefly suspended earlier this month due to increased protests in the area.
In the meantime, South African ANC renegade Julius Malema, who has backed wildcat miners' strikes, said he would visit a platinum mine run by Impala, a large platinum and UG2 chrome ore producer, on Thursday, to press for a wage strike there.
While the loss of output is expected to be significant, its effect is likely to be only temporary as platinum miners should quickly make up for the lost supply once operations restart, market players said.
UG2 chrome ore, which has a lower chrome content compared to chrome ore, was considered waste by platinum miners until a few years ago.
More recently however, technological developments have made it possible to use this by-product as a raw material for stainless steel ingredient ferrochrome and UG2 chrome now makes up for about 50-70 percent of South Africa total chrome ore export, an industry analyst said.
Although it is difficult to estimate South Africa's UG2 chrome ore production as stocks figures are not available, domestic consumption and exports stood at 2-3 million tonnes per annum in the last three years.
Traders said longer-term plans by firms to process more UG2 chrome from South Africa are likely to put pressure on prices from next year when new capacity is expected to come on stream.
"That's one of the sources where we could see more material coming from next year and it can have a negative impact on chrome (prices) considering the stainless steel market is still pretty awful at the moment," a second European trader said.