China’s slowing industrial activity and growing ferrochrome production poses a threat to Merafe Resources, which reported lower annual earnings as weaker commodity prices and higher costs weighed on its performance last year.
In its annual financial results, Merafe warned that the group’s 2025 outlook sees market volatility stemming from geopolitical tension, protectionist policies, regional wars and potential slowdowns in Chinese industrial production.
Inflationary concerns and currency volatility remain risks, it said.
A recent note by asset manager Schroders said regardless of their actual implementation, the fear of US tariffs alone would be enough to drive market volatility in the coming months.
“In February, the dollar fluctuated in response to tariff fears. This is irrespective of the final result of tariff threats as seen with resumed dollar strength as the US announced tariffs on China, Mexico and Canada,” said Schroders.
“It is worth noting that Trump’s first trade war with China had minimal impact on US inflation. However, a second trade war could differ as Canada and Mexico account for double the share of imports.
“Goods from Mexico and Canada travel via land, resulting in possibly harder tariffs to circumvent,” it said.
China increased its ferrochrome production by 25% last year, which exceeds the growth in stainless steel production over the period, with the resultant market oversupply putting downward pressure on ferrochrome prices.
Inflation and pricing pressure led to increased fixed costs constraining Merafe’s smelting operations last year. The group reported a 2% year-on-year increase in ferrochrome production costs for the year to end-December.
The firm said in its latest results that cost management remained a key focus, and it plans to review its smelting operations to leverage technology for optimisation, cost reduction and a focus on environmental sustainability, including the construction of a new solar power plant.
Electricity costs are another huge constraint on Merafe’s ferrochrome operations, with the cost of power accounting for about 20% of the group’s ferrochrome production costs.
However, the miner increased its solar-generated power by 79% last year, resulting in more than R40m in savings compared with the power it would otherwise have bought from Eskom or municipalities.
The miner reported ferrochrome production unchanged from the previous year at just more than 300,000 tonnes, while chrome ore sales rose 1% to 475,000 tonnes. PGM sales volumes grew 106% to 13,557oz.
Ferrochrome prices and volumes were lower than the previous year and the average rand-dollar exchange rate was stronger in 2024, said the company.
Despite resilient chrome ore prices and higher sales volumes, revenue was down 9% year on year at R8.44bn. As a result, and after a R574m impairment of the Boshoek smelter, earnings for the year to end-December slumped 62% to R667m.
Headline earnings per share (HEPS) declined 29% to 42.9c and a final cash dividend of 8c per share was declared from 22c a year ago.
Merafe’s core asset is the Glencore-Merafe Chrome Venture, in which it owns a 20.5% stake, with global commodities giant Glencore holding the remaining 79.5% and being responsible for its operational management.
Merafe’s attributable share of the joint venture’s earnings before interest, tax, depreciation and amortisation (ebitda) fell to R1.8bn, from R2.36bn previously.
The Rustenburg smelter had been under care and maintenance since September 2023, and the venture has continued to pay full salaries to all permanent employees during this period.
The venture embarked on an extensive stakeholder consultation process in terms of Labour Relations Act from August last year; of 448 remaining affected employees, 241 were redeployed at other operations, while the remainder were retrenched.
A R79m inventory writedown was recorded in addition to Rustenburg Smelter retrenchment costs of R67m. The Waterval mine and Lydenburg smelter remained under care and maintenance, while the Boshoek mine was successfully divested in 2024.
Despite logistical challenges, projected shipment volumes were achieved, it said.
“Despite these challenges, Merafe delivered satisfactory overall results, though 2025 is anticipated to present increased challenges. Management is constantly evaluating strategies to enhance the business’ resilience,” it said.
Update: 10 March 2025. This story has been updated with new information.
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