A chrome ore export tax could further erode the global competitiveness of SA’s chrome mining and ferrochrome sectors, the Minerals Council SA has warned.
The lobby group, which represents the interests of 90% of SA’s mining industry, reiterated its opposition to the government’s proposed chrome ore export tax in a note this week.
Minerals Council acting chief economist Bongani Motsa cautioned that the state, in its pursuit of export controls, was overlooking the heart of the issue with SA’s idle ferrochrome smelters: the surging cost of power.
“What is clear is that electricity costs remain the single biggest constraint to ferrochrome beneficiation in SA, undermining the industry’s competitiveness and growth potential,” said Motsa.
The cost of electricity has risen by more than 800% since 2007. During this time, electricity tariffs have increased 937% on average, more than six times consumer price inflation over the same period.
In recent years, double-digit tariff hikes have added billions of rand to the electricity bills of major mining and smelting operations, grinding away at the country’s competitive advantage.
Despite the substantial reduction of load-shedding since last year’s elections, the stability of Eskom’s supply remains a concern for local industry. Eskom’s electricity generation last year was 6% below 2019 levels and 11.5% below 2007 levels.
This has led to droves of idle ferrochrome smelters as the country struggles to beneficiate its vast chrome reserves and capture more of the critical mineral’s value chain.
SA is home to about 80% of the world’s chrome, which is mainly used in the production of ferrochrome, an essential ingredient in steelmaking, and in the production of chromium batteries.
Tax aims to boost local beneficiation
The government believes that its proposed tax would encourage chrome miners to reconsider their investment plans and reroute their output towards local smelters, stimulating local beneficiation and bringing the hundreds of idle SA ferrochrome plants back online.
It has also framed export controls as a necessary intervention to combat illegally mined chrome ore, which is thought to account for 10% of all chrome ore mined in the country annually.
However, Business Times reported that mining executives such as Sibanye-Stillwater CEO Richard Stewart and Valterra Platinum CEO Craig Miller have warned that a levy on chrome ore exports could weigh on export volumes, costing the fiscus much-needed revenue and resulting in job losses at chrome mines.
The proposed duty “raises concerns about competitiveness and profitability”, said Motsa, as the pressure exerted by an export tax — which reports by Sunday Times suggest could be as high as 25% — risks sacrificing even more of SA chrome miners’ dwindling competitive edge.
Main points:
- The Minerals Council SA warns that a chrome export tax could harm the competitiveness of SA’s chrome and ferrochrome industries.
- Idle smelters are due to high energy costs and unreliable supply, not insufficient local beneficiation.
- The proposed tax (possibly up to 25%) risks reducing exports, causing job losses and lowering tax revenue.
- Despite SA’s chrome advantage, China produces ferrochrome more cheaply.
- Policy choices are now the key factor determining SA’s ability to stay competitive globally.
Minerals Council data shows that the average cost of producing ferrochrome was about $119 a tonne last year in SA, compared with just $103 a tonne in China, despite SA benefiting from lower feedstock and transport costs than the Asian superpower.
“Such a tax would fail to resolve the underlying challenges facing the ferrochrome sector and could instead cause harm to the chrome mining and ferrochrome sectors,” said Motsa.
“Ferrochrome smelters have been idled because of the rapid escalation of electricity tariffs and variable supply issues in the past two decades, rather than [because of] the availability and price of chrome concentrate.”
The acting chief economist warned that government policy would remain the main determinant of SA’s competitive strength in ferrochrome markets, saying, “While SA possesses a comparative advantage in mineral endowment, this does not automatically translate into competitive advantage — an outcome largely shaped by government policy”.
In recent months the government has moved to extend negotiated pricing agreements (NPAs) 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.
Still, Merafe Resources announced in September that it had begun a retrenchment consultation process with employees at its Boshoek and Wonderkop smelters in the North West, indicating that closures were on the horizon.
The smelters are owned by the Merafe-Glencore joint venture, which has already closed 10 of its 22 furnaces over the past four years, resulting in the loss of 1,800 jobs. Thousands more jobs and billions of rand of export earnings are on the line if the smelters, which were suspended earlier this year due largely to unsustainable electricity costs, are closed.
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