SA’s ability to beneficiate chrome ore into ferrochrome — an indispensable metal in the production of stainless steel — has all but come to a halt, costing the fiscus billions of rand in lost revenue, along with thousands of jobs.
This could have been avoided had the government listened to multiyear concerns from industry that things like astronomical energy costs had rendered smelting operations unviable, according to Glencore Alloys CEO Japie Fullard, who warns SA is running out of time to save the situation.
SA, which has the largest chrome ore reserves in the world, has surrendered the competitive advantage to China, which has taken the leading role in the beneficiation process.
Glencore’s venture with Merafe Resources is on the verge of retrenching more than 2,500 workers as it idles its smelters.
“When you beneficiate the chrome ore into ferrochrome, that is where the financial multiplier comes from. There is also the labour multiplier. For every one direct job that you get in beneficiation, you create about seven indirect jobs,” Fullard said.
“The Chinese are more than 50% cheaper than us in terms of electricity. From about 2012, the Chinese began building massive ferrochrome plants in China and later in Mongolia. Today they have 10-million tonnes of capacity,” he said.
“In contrast, if we make ferrochrome today in SA, it’s impossible to make a profit. So it becomes better to just export the chrome ore. I told the government six years ago that this is where we are heading. This is because we rendered the sector uncompetitive.”
The cost of electricity has risen more than 800% since 2007. High energy costs are damaging SA’s mining industry, which accounts for about 8% ofGDP, according to a study by Boston Consulting Group. The study found that SA’s energy costs are the fourth highest among similar mining jurisdictions.
Glencore and Merafe earlier this year suspended the venture’s smelting operations at Boshoek and Wonderkop after the completion of the business review process — commencing legal processes that might lead to job losses. The venture also temporarily suspended operations at the Lion smelter to allow for scheduled annual maintenance and planned rebuilds.
Market pressure on the ferrochrome industry led the venture to put the Rustenburg smelter on care and maintenance in 2023. The Chinese effect on the global ferrochrome market resulted in the company’s smelting business making losses. The joint venture produces about 2.3-million tonnes of ferrochrome a year, or roughly a third of SA’s annual exports of the ferroalloy.
Pricing agreements
With the industry in crisis, the government has moved to extend negotiated pricing agreements to SA’s alloy and ferrochrome industries, allowing these companies to negotiate their electricity prices in a bid to promote beneficiation in these energy-intensive sectors. The National Union of Mineworkers has called out the venture over the proposed job cuts, saying this was a tactic to strong-arm the government in coming to the rescue.
Despite having the world's largest chrome ore reserves, SA's ferrochrome production is collapsing due to soaring energy costs and lack of government action. Glencore and Merafe may retrench thousands of workers as smelters become unprofitable, handing the beneficiation advantage to China. The industry has warned government for years. Without urgent energy reforms, SA risks losing billions in value-added exports, thousands of jobs, and its position in the global ferrochrome market.
Fullard said this position did not appreciate the gravity of the situation and that the company did not use its employees as pawns.
“We had to make this process [section 189 formal] because we have been speaking to government for six years and they think we are bluffing. The section 189 is not to bluff anybody. The process is painful because it feels like putting one’s children in the streets,” he said.
“All we are saying is that government better give solutions, because in their absence we unfortunately have to go through this process. This is not a retrenchment process but a formal process to consider all options on the table. This time around, there seems to be a genuine attempt from the government to find solutions.”
Fullard is due to meet electricity & energy minister Kgosientsho Ramokgopa on Friday. Last week the minister told MPs SA’s high energy costs had become untenable, threatening the very existence of smelters that have been shedding jobs at an alarming rate. Ramokgopa was addressing parliament on the R54bn Nersa blunder that will see consumers pay more for electricity.
“We are on a robust process on how we reduce electricity prices. We also want to democratise the conversation. Most of the cost emanates from primary energy costs. We need to resolve that,” Ramokgopa said.
“We can’t wait for 10 years [when renewable energy is expected to bring down costs of primary energy]. We need to make an intervention now because [the] industry is suffering. Even with the dispensation of negotiated price agreements, I think we can still do better,” he said.
“Smelters are closing in their numbers. Industry is becoming more and more uncompetitive. So we are stunting the growth of the SA economy as a result of energy prices that are runaway prices ... we have come to appreciate the impact of high energy costs.” With Jacob Webster
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