One of SA’s and the world’s largest ferrochrome producers is considering suspending at least half of its remaining furnaces, putting at risk more than 2,000 jobs and billions of rand of export earnings.
Switzerland-based Glencore, the majority partner in a chrome pooling and sharing venture with Merafe Resources, said this was mainly because of high electricity prices that had made it more viable to export raw chrome ore than to smelt it into ferrochrome locally.
The pooling and sharing venture has already closed 10 of its 22 furnaces over the past four years with the loss of 1,800 jobs and might now have to suspend more ferrochrome production.
“The impact on SA would be devastating,” said Glencore head of Ferroalloys Japie Fullard. But the group would enter into negotiations with Eskom and the government to try to find solutions and avert the closures. He said the pooling and sharing venture needed “decent” electricity prices to be viable.
Speaking on the sidelines of the Mining Indaba last week, Fullard provided details on the announcement by JSE-listed Merafe, which said the pooling and sharing venture had initiated a business review process into its ferrochrome smelting business because of market conditions and would begin to suspend certain of its ferrochrome furnaces in May if they continued to be unprofitable.
The announcement put the spotlight on the woes of the ferrochrome sector in which SA, which has 70%-80% of the world’s resources of chrome ore, was once a world leader. But over the past decade most of the processing has relocated to China, which now smelts more than 70% of the chrome ore SA digs out of the ground.
The Minerals Council said last week that chrome ore mining had “shot the lights out” in a difficult year for SA’s mining industry, with output up 17% and exports rising to record highs.
Though the chrome ore price has fallen to about $200/tonne from a peak of $300, this was offset by higher export volumes that drove up export revenues last year.
But the export revenue SA earns from ferrochrome — a critical input to stainless steel production — is about four times that from unrefined chrome ore.
Fullard said that while shutting down smelters would cut the pooling and sharing venture’s losses, it would lose SA billions in export revenue and tens of thousands of jobs linked to beneficiation.
Glencore owns 79.5% of the pooling and sharing venture with Merafe owning the rest. The venture already has a negotiated pricing agreement with Eskom and the National Energy Regulator that gives the furnaces a discount on the electricity tariff in return for giving Eskom some of the upside when global ferrochrome prices are high. Rival ferrochrome producer Samancor has a similar deal.
But Fullard said the agreement still did not make electricity costs cheap enough to make the furnaces viable. It also included a “take or pay” condition. The agreement has a three-month hardship notice period — hence the May date by which Glencore and Merafe will decide on the possible suspension.
Structural issue
“There’s no way that we as SA cannot beneficiate our own product. It’s ridiculous,” Fullard said. “It’s our natural resources and each time we export the raw ore we export jobs. It just shows you there’s a structural issue in SA with regard to beneficiation.
“First prize would be a decent electricity price so that we can be competitive, which will mean we can beneficiate more locally rather than in China, and therefore create more jobs in SA. If we as SA don’t do something, more and more mining industry smelters will close.”
SA has just more than 5-million tonnes of installed ferrochrome smelting capacity, but less than 3-million tonnes of this is operational after the shutdowns of several smelters in recent years.
Minerals minister Gwede Mantashe took up the issue aggressively in his opening address to the Investing in African Mining Indaba last week, saying China had built its chrome industry from resources it imported from Africa and accusing it of flooding the market and driving down the price of chrome ore.
“China builds its chrome industry on the back of our chromium and they are bigger than us. That is unnatural,” he said. “Our chrome mining companies say they can barely survive, but they are the biggest producers.”
Mantashe said the government was mindful that for local beneficiation to succeed SA needed to provide a consistent, reliable and affordable electricity supply. It was considering sustaining commodity linked tariffs and consolidating other incentives to encourage beneficiation, he said.
The cabinet announced a chrome export tax in 2020 to support the development of the downstream ferrochrome industry. But while some integrated producers (those with both mines and smelters) supported the tax, it was opposed by SA’s non-integrated chrome miners, which feared this could prompt retaliation by China.
A 2021 study by Genesis Analytics concluded that “contrary to the government’s goal, the proposed tax would result in a material probability of significant job losses (abut 10,000 direct jobs and 34,000 indirect jobs) across SA chrome mines, with little hope of a compensating effect in the ferrochrome industry.
“Furthermore, we found that the main ailment of the ferrochrome industry was not a shortage of relatively lower cost raw material inputs ... but rapidly increasing electricity costs.”
However, a 2020 study by Trade & Industrial Policy Strategies found that an export tax on chrome ore would give domestic ferrochrome producers a competitive advantage over international producers with minimal disruption to chrome ore miners.
The latest Minerals Council figures show SA mined 22.9Mt of chrome ore in 2024, up 16.5% from 2023, with exports reaching a record 19Mt in the first 11 months of the year. The industry employs about 25,000 people of the mining industry’s 471,000 total.
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