News that Glencore and Merafe’s joint ferrochrome venture may close more than half of its remaining smelters comes as another sad reminder of how far SA continues to fail in its oft-stated ambition to benefit more of the minerals it mines.
SA has more than 80% of the world’s chrome resources. But when it comes to smelting that ore into ferrochrome — an essential ingredient in stainless steel — SA has lost most of its market share to China, which has no chrome but now smelts more than 70% of the ore SA produces. Of course, SA still benefits from the export earnings on the raw ore, but exporting the refined ferrochrome would earn it four times more.
The dynamics are similar in manganese, where SA likewise has the world’s richest resources — but has steadily lost smelting capacity, opening the way for the blossoming of an industry which mines but doesn’t smelt. The reason the smelting has shifted from SA to China so markedly over the past couple of decades is simple: China has much lower input costs. It also has reliable electricity. Load-shedding may have ended now, but electricity tariffs have more than doubled in recent years and this year will go up a further 12%.
Operational capacity has already almost halved and is set to fall further if the Glencore-Merafe venture goes ahead with shutdowns. That could shed a further 2,000 jobs, over and above the 1,800 lost over the past four years as the venture has closed 10 of its original 22 furnaces. Nor is the venture alone: this week Richards Bay Alloys announced it was permanently closing its ferrochrome smelter, despite significant investment in technology that made it more energy efficient.
If SA wants to do more beneficiation, as the government keeps claiming it does, the whole system of electricity pricing needs a serious rethink.
Electricity prices aren’t the only reason SA smelters can’t compete with China. Labour and other steep costs of doing business such as crime don’t help either. But electricity is a big one, even though large ferrochrome producers have special pricing agreements with Eskom. If SA wants to do more beneficiation, as the government keeps claiming it does, the whole system of electricity pricing needs a serious rethink. The regulatory model for setting tariffs has been in trouble for years, Eskom’s costs remain bloated, and SA clearly doesn’t have an appropriate pricing model for the new electricity industry it is trying to create.
A chrome export tax was proposed in 2020 to address the industry’s woes. The department of trade, industry & competition loved the idea; so too did the large ferrochrome producers. The pure chrome miners, not so much. SA may have failed to sustain a competitive ferrochrome industry, but it now has a large and successful chrome mining industry that employs tens of thousands of people — people whose jobs could be at risk if SA imposed a tax that annoyed its largest customer, China.
Advantaging one section of the industry at the expense of another is no solution to a problem that has deeper roots in the government’s inability to deliver a favourable environment for the beneficiation that is supposedly part of its industrial policy. It’s time to go back to the drawing board.
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