Mining Weekly is South Africa’s premier source of weekly news on mining developments in Africa’s most important industry. Mining Weekly provides in-depth coverage of mining projects and the personalities reshaping the mining industry.
South Africa has a long-standing chrome value chain that sustains 200 000 jobs and R42-billion a year in gross domestic product (GDP), but the industry speaks with one voice when it says that it is in meltdown mode.
If things go on like this, it could shed 60 000 to 80 000 of those jobs and lose its once dominant market position to China, despite China having no chrome of its own.
The contribution of the ferrochrome industry to South Africa’s GDP could plunge to R23-billion, and chrome ore prices could collapse.
On the environmental protection front, global carbon dioxide (CO2) emissions from production would rise by at least 15% a ton as a result of the displacement of capacity from the world’s most efficient South African smelters to the world’s least efficient energy-sapping and CO2-spewing Chinese smelters.
To maximise the resource endowment, the ferrochrome industry is advocating that South Africa fosters a competitive environment for beneficiation and creates sustainable long-term returns through top resource management and continued investment.
While the export of raw ore creates only 5.7 jobs per 1 000 t of ore, the export of ferrochrome creates 17.3 jobs per 1 000 t of ferrochrome – over three times more.
There is a nigh six times value uplift with ore exports contributing R1 660/t to GDP and ferrochrome contributing R9 109/t to GDP.
These figures justify South Africa’s beneficiation strategy, which should be accom-panied, the industry believes, by the laying down of a justifiable electricity price path that keeps Eskom in business and also sharpens competitiveness.
South Africa would not be alone in implementing measures to maximise return from the resources it hosts in abundance, given what Canada has done in potash, Brazil in iron-ore, China in metallurgical coke and India in chrome and iron-ore.
The irony of it all is that South Africans are giving China the chrome stick with which to hit it by supplying half of the raw ore it requires.
India used to do the same but has now stopped. Its government intervened in 2006 at a time when South Africa should have. Now India is enjoyng the value add as its ferrochrome sales rise and its ore exports plunge. Oman and Turkey are thinking of doing the same.
But as the local job-providing ferrochrome business burns, will the South African government continue to fiddle as it has done for the past half a dozen years?
In South Africa, the industry wants govern-ment to impose an export duty to discourage the country from exporting raw chrome ore and, in the longer term, establish an industry marketing arm, similar to CanPotex, of Canada, which has been highly successful at marketing potash.
But at least one South African chrome trader is as vociferous that the proposed imposition of a temporary export tax will also cause economic hurt.
It is the typical standoff between producer and trader that only a fair and equitable local ore price will end.
Big capital spenders in the chrome-to- ferrochrome business have been complaining for the last six years that their substantial investment processing capacity is being underused as their fellow South Africans export raw ore to the Chinese, who are now virtually level pegging with them in the production stakes.
The meltdown signs are there for anyone to see. Producers have been closing furnaces left, right and centre and selling back their power allocation to State power utility Eskom.
The ferrochrome fortunes of JSE-listed black-controlled Merafe Resources, a proxy for Xstrata, fell 13% and profit plunged 58% in the year to December 31.
Merafe CFO Zanele Matlala reported that profit of R279-million in 2010 had shrunk to R117-million in 2011.
The Xstrata-Merafe venture has closed five of its 20 furnaces until May 31. Its peers have done likewise, Samancor Chrome closing a similar number and ASA, Tata and International Ferro Metals each closing furnaces, with Hernic poised to follow.
Merafe CEO Stuart Elliot’s call is that something urgent needs to be done. He is confident that the South African government will help by imposing a $100/t export tax on unbeneficiated chrome leaving South Africa’s shores.
Long-term he expects a system of credits to balance supply and demand.
Were it not for the unconstrained export, there would have been no need to close furnaces at this early stage in the year when production is generally still at full tilt ahead of the high winter power tariffs.
“With power being so expensive in winter, you generally try to maximise all your production in summer, build up inventory and do your closures in winter,” Elliot tells Mining Weekly.
Instead, the hard-hit South African ferrochrome industry is already in major sell-back mode to Eskom, even though winter tariffs only click in from June 1.
This is because South Africa’s ferrochrome production is being displaced by Chinese ferrochrome production, with South Africa’s 300 000 t supply loss exactly matching China’s 300 000 t ferrochrome gain.
Half of the raw ore South Africans exported to China in 2011 was from platinum miners producing chrome as a by-product of mining upper group two (UG2) reef, 30% from integrated ferrochrome producers and 20% from independent chrome-ore miners.
“It’s this unbeneficiated ore that is leaving the country and growing the Chinese ferrochrome industry at South Africa’s expense,” Elliot points out.
For the rest of this article, please go to the MiningWeekly.com website: http://www.miningweekly.com/article/south-african-ferrochromes-in-meltdown-urgent-intervention-needed-2012-03-16