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15 Jun 12 Chrome firms want protection


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 R3,5-billion 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 forecasts it could grow UG2 chrome ore volumes to 2-million tons next year from 340 000 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 600 000 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.

Chromtech has agreements with Eastern Platinum, Lonmin and Amplats to extract chromite ore from their tailings.

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 100 000oz a year and restructured its Crocodile River Mine, earned $4,3-m in chrome revenue in the final quarter of last year.

This made up more than a quarter of total revenue of $19-million. The chrome credit lowered operating cash costs to R8685/oz from R10 455.

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.

Article source: http://business.iafrica.com/articles/800527.html

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15 Jun 12 Chrome firms want protection


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 R3,5-billion 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 forecasts it could grow UG2 chrome ore volumes to 2-million tons next year from 340 000 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 600 000 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.

Chromtech has agreements with Eastern Platinum, Lonmin and Amplats to extract chromite ore from their tailings.

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 100 000oz a year and restructured its Crocodile River Mine, earned $4,3-m in chrome revenue in the final quarter of last year.

This made up more than a quarter of total revenue of $19-million. The chrome credit lowered operating cash costs to R8685/oz from R10 455.

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.

Article source: http://business.iafrica.com/news/800527.html

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07 Apr 12 China to cut SA chrome imports


Articles

Domestic Chinese ferrochrome costs about half of that of imports from SA, where production is being squeezed by soaring electricity prices and by uncertainty over Eskom’s ability to deliver uninterrupted power.

China is busy adding domestic ferrochrome capacity, with 1.76million tons of new annual capacity coming on stream between 2012 and 2015. To put that in perspective, China imported 409316t of ferrochrome in last year’s fourth quarter, of which 271706t was South African. By the middle of this decade, new Chinese capacity is likely to lead to a global oversupply even if the South Africans close more furnaces.

Executives of existing or would-be South African ferrochrome producers – Merafe CEO Stuart Elliot and Ruukki director Danko Konchar among them – have reacted to the Chinese competition by calling on Pretoria to tax chrome ore exports. At a March conference in Hong Kong, Konchar urged Pretoria to impose an export tax of $100/t. At that time ore prices were only fractionally over $200/t landed at Chinese ports. Higher, taxed ore export prices could, the idea was, tip the competitive balance in SA ferrochrome producers’ favour. SA ore exporters, who sit on four-fifths of the global chrome resource, might demur over interference in their trade.

Should Chinese ferrochrome makers object to SA ore prices they could turn to Zimbabwe, Turkey, India or Kazakhstan. That’s despite the fact that Zimbabwe is continuing to restrict ore exports, that Kazakhstan continues to push for its domestic ore to be smelted at home and that India is adding export quotas to its existing 30% ad valorem export tax. China itself was holding substantial stocks of ore at the end of 2011 and is expected to draw on them rather than pay higher import prices. There’s enough chrome in the ground worldwide to satisfy demand for several centuries.

In a new report, Johannesburg-based Core Consultants says SA ferrochrome producers cut output by 15% in this year’s first quarter. Producers continue to struggle with Eskom’s power buy-backs, which have curbed electricity availability. The upshot, says Core, was that SA’s ferrochrome producers only operated at 55% capacity in this year’s first quarter, though there are upper-end suggestions of a rise to 65% in the second quarter.

Smelters continue to be closed or converted to ferromanganese production. Back in 2001, SA produced 50% of the world’s ferrochrome. By 2010 the share was down to 42% and falling.

Global output of ferrochrome totalled 2.072 million tons in this year’s first quarter with a small supply:demand deficit. An expected return to surplus this quarter should contribute to some price stodginess. Near-term demand for stainless steel and, by extension of ferrochrome, is hardly positive.

Europe’s demand for ferrochrome for current steel production is likely to require a protracted convalescence, though steelmakers appear to be replenishing alloy stocks, as are US steelmakers. China appears set to draw down its stainless stocks before raising production.

In the EU, this year’s first-quarter high-carbon ferrochrome contract benchmark prices fell by some 4% quarter-on-quarter to $1.15/lb but are expected to advance to $1.25 or more in the second quarter. In the US, spot prices of between $1.17-$1.21/lb were 12% higher quarter on quarter. In contrast, first-quarter low-carbon prices declined generally across the globe, falling from $2.18-2.28/lb early in January to $2.07-2.12/lb in early March. SA largely produces the high-carbon product.

High-carbon ferrochrome producers are being squeezed by rising input costs. For the longer term, Core estimates that rising costs will force producers to lift prices to $1.32-$1.35/lb by 2016 if they are to remain profitable. Ore may be cheap, but the SA smelters that are crucial to the country’s beneficiation hopes will be closely watching Eskom’s electricity prices and supply.

Article source: http://www.businesslive.co.za/world/int_markets/2012/04/07/china-to-cut-sa-chrome-imports

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19 Mar 12 MERAFE RESOURCES Taxing times – Cogeneration & On


MERAFE RESOURCES

Taxing times

A tax on raw chrome exports from SA may help ferrochrome producers in the short term but falls well short of a long-term solution to SA’s lack of competitiveness.

The Xstrata/Merafe Resources ferrochrome joint venture is confident government will grant what it has lobbied for over several years: a US$100/t tax on exports of raw chrome ore from SA, says Merafe CEO Stuart Elliot.

SA has the world’s largest deposits of chrome ore, which has resulted in its status as the biggest producer of ferrochrome, an essential input for stainless steel. But China is catching up fast.

Last year China’s ferrochrome production rose 13% and SA’s fell 9%. Without any chrome of its own, China’s ferrochrome producers can buy raw material from SA, pay transport costs, turn it into ferrochrome and still make a profit because they pay less for building smelters, and for electricity and labour.

Xstrata and Merafe argue that raising the cost of SA’s chrome ore will push up China’s production costs and, in turn, global ferrochrome prices, which will benefit local producers.

But in the short term China’s ferrochrome output will continue to grow at SA’s expense. About 30% of SA’s ferrochrome furnace capacity has been suspended until end-May to ease Eskom’s electricity shortage. This coincides with low quarterly ferrochrome prices, now at $1,15/lb from $1,25/lb a year ago.

In a recent note to clients, Imara SP Reid said reduced supply could result in second-quarter ferrochrome prices being settled at $1,25/lb or even $1,35/lb.

Producers with access to chrome are likely to sell more of it to Asia in the next few months instead of turning it into ferrochrome. That will sustain profits in the short term, but in the long run China will further increase its share of the ferrochrome market.

Even while deploring raw chrome exports from SA, Merafe earned 14% of its R2,4bn revenue last year from selling chrome ore, mainly to Asia.

Lara Smith, MD of independent researchers Core Consultants, says she is not in favour of protectionism in principle but that SA’s ferrochrome industry faces a unique situation.

Last year’s growth in stainless steel production was not reflected in a higher price for chrome ore because there was enough ore available. However, because of the quantity of chrome ore that SA produces, if it imposes a tax on exports, it will compel China to pay more for its chrome and this will filter through into higher ferrochrome prices.

But, Smith adds, SA cannot limit or ban chrome ore exports without a structural shift in the economy towards greater diversity of energy supply. Integrated producers like Ruukki, Hernic and London-listed International Ferro Metals (IFM) have all invested in co-generation plants but need an environment that supports investment in energy generation.

Recent financial reports from Merafe and IFM reflect the efforts SA producers are making to control costs. So though current conditions are tough, investors in those companies should be patient.

Merafe is proceeding with several energy-efficient investments, including the Tswelopele pelletising project at its Rustenburg operation and the Lion 2 smelter expansion at Steelpoort, Limpopo, which will add 380000t/year of capacity. To fund these expansions, it passed a dividend and has raised an R800m loan facility with Absa, mainly to finance Lion 2.

IFM also passed an interim dividend as profits fell. It has completed a number of cost-reduction projects, including the Sky Chrome mine and three plants for co-generation, UG2 chrome recovery and waste recovery.

Another positive note came from a report from steel analysts MEPS last week that February transaction values worldwide for stainless steel gained from restocking, though end-user demand remained low.

“Buying activity is predicted to improve in the short term, helping world mills to apply further price advances. However, the slow economic recovery could limit end-user demand and restrict producers’ attempts [to hike prices],” MEPS said.

Stuart Elliot Confident government will grant tax on raw chrome exports

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Article source: http://www.cospp.com/news/2012/03/18/merafe-resources-taxing-times.html

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