A VITAL revenue stream for platinum miners — chrome ore — may be choked off if ferrochrome producers are successful in lobbying for a protectionist export tariff of $100/ton in their desperate attempt to protect their own businesses from China’s burgeoning chrome refiners.
Platinum mines in SA are shutting down and projects are being mothballed because of high input costs and stagnant prices in an oversupplied market.
But there is money to be made from the chrome found in platinum miners’ discarded waste after the platinum group metals have been extracted.
A reef stretching across North West, Mpumalanga and Limpopo, contains the world’s richest source of UG2 (upper group 2) platinum and chrome deposits. The raw product is smelted in an electricity-intensive process and converted to ferrochrome, an alloy used to make stainless steel.
SA is a leading ferrochrome producer through local refineries, but China is catching up, growing its market share to 35% last year from below 10% in 2001.
Ferrochrome producers, who have invested R3,5bn a year in their businesses since 2006, argue that the Chinese growth is at their expense, as China uses South African chromite ore — a practice they want to be stopped.
Revenues generated from chrome are by-product credits, bringing down the cost of platinum production in an extremely difficult market.
Platinum miners are increasingly putting chrome recovery plants on the back ends of concentrators. Chrome accounts for about 200kg/ton in their tailings.
Not only is this a handy revenue stream — especially in tough times — but it also reduces the amount of material going onto tailings dumps.
Anglo American Platinum (Amplats) said recently its chrome strategy was to “create maximum value to the platinum group metals business by using the revenue generated by UG2 chromite to offset the platinum group metals mining costs in order to be the lowest cost platinum producer”.
Amplats, which has 640-million tons of UG2 chromite-rich reserves, is reviewing its business to restore profit margins. It is widely expected that the review will result in shaft closures, mothballed joint ventures or possible asset sales.
It forecast it could grow UG2 chrome ore volumes to 2-million tons next year from 340000 tons in 2010.
Amplats argued that as long as China could not buy “competitively priced” ferrochrome, it would continue importing chromite ore to make its own.
SA has lost its cost advantage on ferrochrome output because of electricity prices doubling and above-inflation wage demands.
What the ferrochrome business needed was sufficient, fairly priced electricity and an agreement with UG2 producers to sell their chromite ore at a reasonable price, Reenen Pretorius, commercial manager at Chromtech Holdings, said yesterday. The company, 50% owned by JSE-listed Grindrod , exports 600000 tons of chromite a year.
Mr Pretorius warned that the ferrochrome producers’ lobbying for the $100/ton export tariff “will kill off” a significant source of revenue for platinum mines at the worst possible time. “This is protectionism to fix an industry that is unhealthy,” he said yesterday.
The Treasury said in March no such tariff had been tabled in the 2012-13 budget, but it welcomed talks with the ferrochrome sector. It did not respond to a request for comment yesterday.
The tariff the sector is lobbying for would amount to a 300% tax on UG2 chrome producers and would effectively ban chrome ore exports from SA, David Ellwood, CEO of commodities trader Metmar , said yesterday. China can source chromite ore from elsewhere, potentially cutting SA out of the supply loop, he said.
China imported 4,7-million tons of chrome ore from SA last year, out of its total imports of 9,4-million tons. It takes about 2,5 tons of ore to make a ton of ferrochrome.
Ferrochrome producers are anxious that, if the $100 tariff is imposed, China may reciprocate with a tariff on ferrochrome imports from SA — making their own ferrochrome more expensive and by extension raising the price of stainless steel.
It plans to build a ferrochrome smelter near Brits, but electricity constraints have delayed the project, as the company is now forced to reduce its plans to a fraction of the size originally devised.
Eastern Platinum, which this month suspended a project worth 100000oz a year and restructured its Crocodile River Mine, earned $4,3m in chrome revenue in the final quarter of last year.
This made up more than a quarter of total revenue of $19m. The chrome credit lowered operating cash costs to R8685/oz from R10455.
Platinum miners on the western and eastern limbs of the Bushveld Igneous Complex — the richest, known platinum and chrome deposit in the world — generate about 4,5-million tons of chrome ore a year.
Xstrata has offtake agreements to acquire about 2-million tons of this and the rest is exported by other parties.
According to a study compiled last year by researcher McKinsey, China could produce ferrochrome at $1,19/lb compared to $1,30/lb in SA by 2015 as Eskom’s tariff hikes, more than double since 2007, a proposed carbon tax and rising labour costs make the domestic industry less competitive.
Last year, SA produced ferrochrome for $0,98/lb compared to China’s $1,03.
Ferrochrome producers in SA have idled their smelters because of tight electricity supply due to increased domestic winter demand for power.
Eskom paid them not to use electricity, a decision welcomed by the companies, because they earned more from Eskom than from the sales of their products.