SA’s cabinet backed the imposition of a tariff on chrome ore exports as part of a raft of interventions to “support domestic ferrochrome production and its chrome value-chain sector”.
The two sentences in a 10-page statement released after Wednesday’s cabinet meeting puts SA's independent chrome producers on the defensive.
SA is one of the world’s top two chrome ore exporters and used to be the leading source of ferrochrome, which is used in the production of stainless steel. However, a sixfold increase in electricity prices for heavy users such as furnace operators has made swathes of SA’s ferrochrome industry uncompetitive and resulted in plant closures.
China has surpassed SA as the leading source of ferrochrome, relying heavily on SA’s chrome ore.
According to the Minerals Council SA, the country produced nearly 18-million tonnes of chrome ore in 2019, of which 5.3-million tonnes worth R10.5bn was exported.
Merafe Resources, which is Glencore’s partner at its chrome mines and ferrochrome plants in SA, noted in its year-end results presentation that SA accounted for 12.6-million tonnes of China’s 16-million tonnes of chrome ore imports in 2019.
SA’s exports grew from the 10-million tonnes range in the previous two years.
Merafe’s data showed Chinese ferrochrome was 6-million tonnes, up from 5-million tonnes two years earlier, while SA stayed flat at about 3.6-million tonnes.
Nellis Bester, chair of the Ferro Alloys Producers Association, which also represents ferromanganese and ferrosilicon producers in SA, recently told Business Day that SA was effectively exporting jobs to China. He also indicated the need for urgent support from the state.
However, the association wanted to see reduced electricity prices and long-term price forecasts implemented by the state to save and grow the industry.
Cheaper power
This option was not included in the cabinet statement.
“The interventions include the proposed introduction of the export tax on chrome ore, the usage of energy efficiency technologies on smelters, and the adoption of cogeneration and self-generation technologies,” the statement said.
There were no further details. Repeated requests for comment from National Treasury and the department of mineral resources & energy went unanswered at the time of going to print.
The Independent Chrome Ore Producers Group, which includes Anglo American Platinum, Assore, Bauba Resources, Impala Platinum, Northam Platinum, Chrometco, Sibanye-Stillwater, Siyanda Resources and Tharisa, did respond.
“The proposal regarding the contemplated chrome ore export tax is of particular concern to the chrome group,” it said in a statement on Wednesday evening.
“The chrome group is concerned about the possible adverse impact of the proposed chrome ore export tax on the chrome value chain, including on employees and communities, and it is with this in mind that the exemption application has been lodged with the Competition Commission, to allow for relevant interventions to be explored in detail.”
The group lodged an application with the Competition Commission for an exemption in terms of a clause in the Competition Act.
The exemption would allow the independent chrome producers to hold talks with the departments of trade & industry and mineral resources & energy, as well as other industry participants, on a “range of matters relating to the potential introduction of the proposed export tax on chrome ore and other relevant interventions”.
The inclusion of platinum group metals (PGM) miners in the group is because they produce chrome as a valuable by-product during mining. The group does not include integrated producers, or those with mines and smelters, such as Glencore and its partner Merafe or Samancor.
Bester has said that the ferroalloy industry wanted a 20% reduction in electricity tariffs to reopen mothballed furnaces and would make commitments to the state about stopping smelters for limited times when the electricity supply was under pressure.
That also did not feature in the cabinet’s statement.
An analyst noted the problem for SA’s ferrochrome industry was not one of supply, which an export tariff would, on paper, grow in SA, but the erratic and expensive nature of Eskom’s electricity supply that had made SA ferrochrome globally uncompetitive.
Bester sounded a warning that SA’s total ferroalloy industry could be closed within three years as Eskom implemented annual double-digit price increases to address its insolvent balance sheet and debt approaching R490bn.
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