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06 Mar 12 Raw chrome ore exports smashing South Africa’s ferrochrome business


JOHANNESBURG (miningweekly.com) – The unbridled export of raw chromite ore from South Africa is threatening to smash South Africa’s mature chrome value chain which provides 200 000 jobs and contributes R42-billion a year to South Africa’s gross domestic product.

Reporting plummeting profits and dwindling ferrochrome sales for the year to December 31, Stuart Elliot, CEO of the black-controlled JSE-listed Merafe Resources, said that Xstrata-Merafe Chrome Venture had been forced to close five of its 20 furnaces until May 31, and was appealing to government to impose short-term export taxes on unbeneficiated chrome exports in a bid to save the industry.

Were it not for the unconstrained export of raw chrome, the venture would not have had to close the five furnaces.

“With power being so expensive in winter, you generally try to maximise all your production in summer, build up inventory and do your closures in winter,” Elliot commented to Mining Weekly Online.

Instead, the hard-hit South African ferrochrome industry as a whole had closed 30% of its capacity in power buy-back arrangements with Eskom, ahead of the power utility’s high winter electricity tariffs from June 1, when even more furnace closures were likely.

South Africa’s ferrochrome production was being displaced by Chinese ferrochrome production, despite China having no chrome reserves of its own.

The rise in Chinese ferrochrome production was the result of China importing chrome, with 50% of that chrome ore being exported from South Africa into China.

“Something urgent needs to be done. We’re going backwards,” Elliot said.

That was a far cry from his bullishness before the same JSE auditorium audience a year ago.

But in the interim, the ferrochrome price had fallen from a high of $1.35/lb last May to $1.15/lb in the first quarter of 2012.

Describing a slide flashed onto the big screen as the most important of the presentation, Elliot went on to show how South African supply had fallen by 9% in 2011 contrasting sharply with a 13% supply increase in China.

South Africa’s 300 000 t supply loss exactly matched China’s 300 000 t gain.

Half of the raw chome ore that South Africa exported to Chine had arisen from platinum miners producing chrome as a byproduct of mining upper group two reef, 30% from integrated ferrochrome producers and 20% from independent chrome-ore miners.

“It’s this unbeneficiated ore that is leaving the country and growing the Chinese ferrochrome industry at South Africa’s expense.

“We’ve had ongoing engagements with the government and we’re encouraged by our discussions to date,” Elliot said.

In response to Mining Weekly Online, he said that that encouragement was based on the industry being in direct communication with the Department of Mineral Resources and the National Treasury, which were poised to take remedial measures that would dovetail with the rollout of the country’s beneficiation strategy.

A short-term measure would be the imposition of an export duty that would result in China having to pay more for the raw chrome ore that it was importing from South Africa.

Treasury had the power to impose export taxes and it was envisaged that these would be pitched at $100/t.

The short-term objective was to give the industry a breathing space by increasing the cost of production in China.

The longer-term solution would be the imposition of a mechanism to control the flow of ferrochrome out of South Africa.

The proposal to government was that credits be given to companies that beneficiated chrome into ferrochrome locally and to local companies that sold their raw chrome to ferrochrome producers.

Those credits would then be used to determine the percentage of chrome permitted to leave South Africa in unbeneficiated form.

Zimbabwe had already banned the export of raw chrome outright so that beneficiation could take place within Zimbabwe.

While Zimbabwe’s chrome reserves were vast, mining output was comparatively small, compared with the 4.6-million tons a year of chrome exported.

Elliot waved a brochure at the audience of analysts, investors and media representatives, which outlined how the supply/demand balance could be restored to stabilise the country’s teetering chrome endowment that contributed R36-billion to South Africa in foreign exchange in 2010.

The brochure pointed out that 90% of the South African ferrochrome business’ key technology and equipment inputs were locally sourced and that the industry was the second-biggest customer of State electricity utility Eskom, from which it bought up to R6-billion worth of power a year.

“When we enter the winter period on June 1, power prices will double and that’s when we expect further furnace closures to happen, which is going to result in a very tight ferrochrome market,” Elliot forecast.

Against the growth projected for ferrochrome-using stainless steel, he believed that the combination of furnace closures would result in an increased demand for ferrochrome units, which should result in improved ferrochrome pricing.

The government had announced that beneficiation would take place in ten different industries along five different value chains.

“The government is rushing to meet its beneficiation deadlines,” Elliot reported, adding that he was confident of beneficiation guidelines emerging by year-end.

South African ferrochrome producers that had closed furnaces in addition to the 25% of Xstrata-Merafe capacity closed were Samancor, which had closed five furnaces, IFM, which had closed two, along with two by ASA, two by Tata and clsorues also expected from Hernic Chrome.

IFM, ASA and Samancor’s Tubatse ferrochrome operation were Chinese controlled and China had itself placed a substantial export duty ferrochrome leaving China and had banned the export of rare earths outright.

Duties imposed by South Africa would have to be in line with the free trade agreement  with the European Union as well as the rules of the World Trade Organisation.
 

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Article source: http://www.miningweekly.com/article/raw-chrome-ore-exports-smashing-south-africas-ferrochrome-business-2012-03-06

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