DAKAR – (Reuters) – South Africa should be able to snatch back the top spot in global ferrochrome production from China within five years thanks to cost-cutting, says one of Africa’s biggest producers, International Ferro Metals.
South Africa’s share of world production of the steel feedstock has slumped since 2012 when it fell by 15 percent to 32 percent of the 4.8 million metric tons (5.2911 million tons) produced globally, relegating it to second place behind China.
“South Africa will regain its leading position as top ferrochrome producer in the world. A number of us have reduced our costs so we can place alloy into China cheaper than the Chinese can produce,” said Chris Jordaan, Chief Executive of South Africa-based International Ferro Metals (IFL) (IFL.L).
That could be possible within five years, he said in a telephone interview during the Reuters Africa Summit. “It suddenly makes it much better to smelt material as close to the ore as you can.” A weak South African rand was also helping the country regain competitiveness, he said.
“The rand/dollar has weakened and now Chinese (producers) are under pressure to compete,” he said.
One of the factors hobbling South Africa’s output in the past was limited power supplies. Under deals with state power utility Eskom, producers agreed to reduce output and cut electricity consumption in return for payment.
“This year the buyback is not happening. It’s financially more viable for us to operate whereas a year or so ago, it made sense for us to shut down,” he said.
He also said he was confident that South African plans to address the power supply situation would allow producers to expand output further.
London-listed IFL, along with rival Glencore Xstrata (GLEN.L), has won priority among businesses to get additional electricity from the new Medupi power station in Limpopo province, north of Johannesburg, he said.
China, which rushed to build smelters to keep up with rising demand for stainless steel, is starting to cut processing rates to around 70 percent of capacity, Jordaan said.
“China is taking key decisions to reduce energy-intensive processing of raw materials so there is no incentive for the government to support the ferrochrome industry there,” he said.
IFL said it has spent around 800 million rand ($76.70 million) over three years to cut costs and improve facilities, including a new UG2 plant, as well as upgrading existing furnaces, allowing it to return to profit in 2013. UG2 is a chrome ore mined as a by-product of platinum processing.
The company expects to increase total production to 240,000 tons in the 2014 financial year ending in June, from around 184,000 tons in 2013.
It is also mulling a new 1.4 billion rand ($134.22 million), 110,000 ton furnace in South Africa and expects to make a decision in the third quarter of 2015.
Output from IFL’s UG2 plant is being affected by a strike by platinum workers in South Africa, now in its 11th week, although Jordaan said the company has alternative supply sources for its furnaces, including its own mine.
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