SA’s chrome industry has been left frustrated, and the economy is tallying up more than R7bn in lost downstream value as the government delay in long-promised export control allows illegal miners and smugglers to take ever more of the country’s precious reserves.
The department of trade, industry & competition is yet to legally kick-start the process to place chrome under export control of the International Trade Administration Commission of SA (Itac), despite the cabinet having approved the measure in June. The result is an implementation gap that industry executives say perpetuates a market in which unlicensed production, theft and illicit export thrive, accounting for about 10%, or 2.7-million tonnes of the annual output. The leakage equates to about R7.5bn a year.
This comes as the chrome industry scrambles to withstand multiple headwinds, including rampant illegal mining, with the sector of the view that placing chrome under export control will help curtail unlawful mining of the metal.
Japie Fullard, CEO of Glencore Alloys, one of the largest chrome producers in the world, said the industry had appealed to the government to better regulate exports in the sector. SA accounts for more than 70% of the world’s chrome ore reserves, and because the ore can be turned into value ferrochrome used in stainless steel, the financial incentives for rogue elements to mine the metal illegally are huge.
"More than 10% of all chrome that is mined in SA is being mined illegally. We must stop illegal mining. About 2.7-million tonnes of chrome is mined illegally. If all chrome producers are made to register with Itac that will stop the illegal mining," Fullard told Business Day. SA’s import and export control regime is administered by Itac, which regulates the movement of specific goods across the country’s borders.
Socioeconomic effect
The cabinet was apprised in June of the socioeconomic effect of the continued decline of the ferrochrome industry and the urgent need for government-industry intervention to stem the decline. One of the measures put forward by the government was placing chrome ore under export control, which will require exporters to obtain an Itac permit.
Despite approval by the cabinet, the trade, industry & competition minister is yet to issue a notice in the Government Gazette to start the process, which will have to include public consultation, among other steps.
The theft of chrome is but one of the challenges facing the industry, which is also strangled by high energy costs that have limited SA from processing chrome ore to the more valuable ferrochrome. This has led to a joint venture by Glencore and Merafe being forced to idle its furnaces and smelters, with thousands of jobs now on the line.
Electricity relief needed
Fullard said substantial electricity relief is needed to revive SA’s beneficiation capacity and stem job losses. He believes the mooted creation of special economic zones for heavily industrialised operations is urgent, as this will introduce incentives and make the sector more competitive.
"We had numerous manganese smelters in SA, but today we only have one still operating: Trans Alloys. If you look at ferrochrome, we have 22 furnaces, but when we closed down Lydenburg and Rustenburg smelters, we lost a lot of capacity. Currently, we only have 12 furnaces available, but none of them are operating," Fullard said.
"This is the first time ever in the history of Glencore and Merafe’s existence that we don’t have one smelter running. I can tell you now that in the absence of any solution, even Lion Smelter is under pressure."
Since 2005 SA’s electricity tariffs have increased 947%. These costs have made production unprofitable, particularly for high-cost smelters such as Rustenburg.
More than 10% of all chrome that is mined in SA is being mined illegally. We must stop illegal mining. About 2.7-million tonnes of chrome is mined illegally.
— Japie Fullard
CEO of Glencore Alloys
Samancor and Glencore operate several ferrochrome smelters in Mpumalanga, Limpopo and North West, along with several chrome ore mines, producing more than half of SA’s ferrochrome output. They are among Eskom’s main industrial customers.
The National Energy Regulator of SA (Nersa) has acknowledged the pressures faced by chrome producers that process chrome into ferrochrome.
"Electricity remains the largest single cost in ferrochrome production, and the rising power prices are placing smelters under severe financial pressure. Smelting ferrochrome requires around 2,800 kWh of electricity per tonne of metal produced," the regulator said in its decision to approve Eskom’s request for a temporary amendment to the Samancor and Glencore-Merafe negotiated pricing agreement’s take-or-pay terms.
One of the amendments is the relaxation of the take-or-pay requirement of 70% for six months from August 1 at the smelter level. "The ferrochrome industry is a key strategic sector in SA, and smelting facilities are in rural areas where local beneficiation and economic activity are critical. Chrome ore is processed to produce ferrochrome. It has additional uses and a significant proportion of ferrochrome is used in the SA steel manufacturing sector," Nersa said in reasons provided on September 9.
"SA has 70% to 80% of the world’s chrome ore reserves; however, its declining competitive position in the global ferrochrome market has led to a reduction of production capacity."
SA producers are struggling to keep up with China, whose electricity is 50% cheaper than that of domestic players, with the Asian economic powerhouse now the world’s leading beneficiator of chrome, despite SA’s vast reserves.
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