UPDATE 1-Europe ferro chrome contract prices hit record high

(Adds detail, comment)

LONDON, Dec 17 (Reuters) - Contract ferro chrome prices in
Europe for the first quarter of 2008 have been set at a record
of $1.21 a pound as consumers rush to secure supplies of the
material used to make stainless steel, traders said on Monday.

In the third and fourth quarters of 2007 the benchmark
contract price was agreed at $1 a pound. Low carbon ferro chrome
FECRO-LC-RU on the spot market last week hit record highs
around $2.4 a pound, up nearly 100 percent since June.

"The market is extremely strong, there is a fundamental
shortage of ferro chrome," a Europe-based trader said.

Ferro chrome prices started to rise earlier this year as
stainless steel makers looked for alternatives to nickel MCU3,
which hit a record high of $51,800 a tonne last May on the
London Metal Exchange.

Nickel prices have halved since then on expectations of
falling demand from stainless steel makers, but ferro chrome
prices have been boosted by concerns about falling supplies from
South Africa.

"Supply of ferrochrome is likely to be under pressure,
particularly as suppliers in South Africa are likely to have cut
some production at times when electricity shortages exist,"
Fairfax IS said in a note.

South Africa produces insufficient power to meet its
demands, Fairfax said.

"This new settlement falls short of the 30 U.S. cents a
pound increase requested by Samancor, but will enable
ferrochrome producers to maintain margins that are under
pressure from energy and other raw materials."

Major producers also include Swiss-based Xstrata (XTA.L: Quote, Profile, Research).

Ferro chrome is used by stainless steel firms such as
Europe's ArcelorMittal (ISPA.AS: Quote, Profile, Research) (MTP.PA: Quote, Profile, Research) and Thyssenkrupp
(TKAG.DE: Quote, Profile, Research).

(Reporting by Pratima Desai; Editing by Peter Blacvkburn)