SOUTH Africa should set up a chrome exchange market to manage the supply of chrome to the global market and prices, Iraj Abedian, CEO of investment company Pan-African Capital, said on Tuesday.
This would be a model similar to Canada’s potash exchange, Mr Abedian said at a Mining for Change seminar in Johannesburg.
The world’s largest chrome deposits are found in South Africa. It is a leading supplier of ferrochrome, a key ingredient in the manufacturing of stainless steel, but its position is under threat from China, which imports about half its chrome ore from South Africa and which grew its market share to 35% last year from below 10% in 2001.
A tariff of $100 a ton of chrome ore leaving South Africa, as proposed by the ferrochrome industry, was a knee-jerk reaction and could only be a short-term measure, Mr Abedian said on Tuesday.
A vital revenue stream for platinum miners may be choked off by an export tariff of $100 a ton. Platinum mines in South Africa are already shutting down and projects are being mothballed because of high input costs and stagnant prices in an oversupplied market.
There is money to be made, however, from the chrome found in platinum miners’ discarded waste after the platinum group metals have been extracted.
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 stopped.
Article source: http://www.businessday.co.za/articles/Content.aspx?id=174496
Bloomberg quoted ArcelorMittal South Africa Limited said that the future of its coke and chemicals unit will hinge on the introduction of an export tax on chrome ore that would assist the country’s alloy producers.
Ms Nonkululeko Nyembezi-Heita CEO of ArcelorMittal said that South Africa is depending very much on the implementation of the proposed tax. Should the government decide against the duty, the steelmaker would have to rethink this whole business as it sells all its market coke locally.
Merafe Resources Limited said that local producers have asked for a tax of USD 100 per tonne to limit exports to China which is displacing local production. South Africa chrome ore exports to China increased 51% to about 4.7 million tonnes last year, while local ferrochrome output declined 9% to 3.28 million tonnes.
The Vanderbijl Park based steelmaker said that revenue from the unit dropped 16% in the quarter through March as a number of producers shut furnaces following electricity buyback agreements with state utility Eskom Holdings SOC Limited. Coke is a key ingredient used to produce ferrochrome from chrome ore.
Mr Mohamed Kharva an analyst at Nedgroup securities Limited said that “If the tax is not implemented it will be really bad for the ferrochrome producers and will put them under pressure.”
The steelmaker said that it expects substantially lower earnings in the quarter through June as domestic demand and prices retreat and costs increase. Profit will be lower due to a decline in domestic demand, softer steel prices, higher costs such as electricity and transport and a drop in sales of commercial coke due to the usual shutdown of the ferrochrome industry in the winter months.
Source – Bloomberg
South Africa, the world’s biggest ferrochrome producer, is “depending very much” on the implementation of the proposed tax, Chief Executive Officer Nonkululeko Nyembezi-Heita said on a conference call today. Should the government decide against the duty, the steelmaker would “have to rethink this whole business” as it sells all its market coke locally, she said.
Local producers have asked for a tax of $100 per metric ton to limit exports to China, which is displacing local production. South Africa’s chrome-ore exports to China increased 51 percent to about 4.7 million metric tons last year, while local ferrochrome output declined 9 percent to 3.28 million tons, Merafe Resources (JSE:MRF) Ltd. said on March 6.
Revenue from the unit dropped 16 percent in the quarter through March as a number of producers shut furnaces following electricity buyback agreements with state utility Eskom Holdings SOC Ltd., the Vanderbijl Park-based steelmaker said in a statement today. Coke is a key ingredient used to produce ferrochrome from chrome ore.
Producers ‘Under Pressure’
“If the tax is not implemented, it will be really bad for the ferrochrome producers and will put them under pressure,” Mohamed Kharva, an analyst at Nedgroup securities Ltd., said by phone from Cape Town.
ArcelorMittal expects more guidance on the proposed tax by the third quarter of the year, Nyembezi-Heita said. The unit contributed 10 percent to its earnings before interest, tax, debt and amortization of 1.97 billion rand ($247 million) in the quarter through March.
The steelmaker said it expects “substantially lower” earnings in the quarter through June as domestic demand and prices retreat and costs increase.
Profit will be lower “due to a decline in domestic demand, softer steel prices, higher costs such as electricity and transport and a drop in sales of commercial coke due to the usual shutdown of the ferrochrome industry in the winter months,” it said.
The local unit said first-quarter profit rose 52 percent to 279 million rand, or 70 cents a share, from a year earlier. Sales climbed 18 percent to 9.1 billion rand as consumers restocked after production shutdowns led to shortages of steel in the second half of last year.
ArcelorMittal South Africa declined 0.2 percent to 55.44 rand by the 5 p.m. close in Johannesburg. The FTSE/JSE (JSE:JSE) Africa All Share Index (Alsi) increased 1.3 percent.
JOHANNESBURG (miningweekly.com) – South African ferrochrome aspirant Ruukki has urged the South African government to impose a $100/t duty on the export of raw chrome from South Africa with the utmost urgency.
Speaking at an industry conference in Hong Kong, Ruukki enterprise director Dr Danko Konchar called for industry consolidation to protect jobs and maximise South Africa’s chrome resource endowment.
Ruukki currently exports raw chrome directly to China and sells a diverse range of chrome products internantionally into the the stanles steel and steel sectors.
His plea follows years of requests to government to halt the South African ferrochrome industry’s demise in the face of rising Chinese production from raw South Africa chrome ore.
Konchar told the conference that the fundamental challenge for South Africa was to create a competitive ferrochrome industry capable of protecting, sustaining and creating jobs while growing its global market share.
In the past year both of these objectives have come under threat. The South African ferrochrome industry currently employs more than 200 000 people and contributes R42-billion to South Africa’s gross domestic product (GDP).
South Africa’s share of the global ferrochrome market has fallen from 50% to 42% between 2001 and 2010 and the worrying trend was set to continue unless urgent action was taken to prevent a predicted fall to 36%.
While that was under way, China’s market share had grown from 5% to 25% and was forecast to increase further.
The curbing of unbeneficiated chrome ore exports to China was critical to reversing the decline in South Africa’s global market share and jobs.
Ruukki supported the current industry initiative that sought to form a partnership between government and chrome producers to find long-term sustainable interventions.
Konchar urged the $100 duty imposition “as soon as possible” in order to encourage more beneficiation of chrome ore within South Africa, thereby boosting domestic ferrochrome production and yielding additional significant socioeconomic benefits for the country.
Similar duty regimes had been very successful in India and Kazakhstan and it was vital that the industry and government start a working group immediately.
Another initiative that requires closer investigation was the possible establishment of a sales and marketing company to regulate the export of chrome ore, which had been successful in other markets, such as the oil industry.
Export quotas could be directly beneficiation linked.
Alongside these two initiatives, Ruukki believed industry consolidation was also necessary.
Without intervention, the industry forecasts job losses of up to 80 000 and a GDP plunge to R23-billion.
On the environmental protection front, global carbon dioxide (CO2) emissions from production would rise by at least 15% a ton as a result of the displacement of capacity from the world’s most efficient South African smelters to the world’s least efficient, energy-sapping and CO2-spewing Chinese smelters.
While the export of raw ore creates only 5.7 South African jobs per 1 000 t of ore, the export of ferrochrome creates 17.3 jobs per 1 000 t of ferrochrome – over three times more.
There is a nigh six times value uplift with ore exports contributing R1 660/t to GDP and ferrochrome contributing R9 109/t to GDP.
These figures justify South Africa’s beneficiation strategy, which should be accompanied, the industry believes, by the laying down of a justifiable electricity price path that keeps State utility Eskom in business and also sharpens competitiveness.
South Africa would not be alone in implementing measures to maximise return from the resources it hosts in abundance, given what Canada has done in potash, Brazil in iron-ore, China in metallurgical coke and India in both chrome and iron-ore.
JOHANNESBURG (miningweekly.com) – The proposed $100/t tax on the export of raw chrome ore would destroy the South African chrome ore mining business and allow competitors from other producing countries to benefit, JSE-listed Metmar CEO David Ellwood said on Wednesday.
Ellwood was responding to Merafe CEO Stuart Elliot’s revelation of the proposed imposition of a $100/t export tax as a means of giving the industry “some breathing space” in the short term.
Elliot complained that South Africa’s ferrochrome production was being displaced by Chinese ferrochrome production.
“It’s unbeneficiated ore that is leaving the country and growing the Chinese ferrochrome industry at South Africa’s expense,” Elliot said.
Ellwood claimed that the proposed tax represented a 100% tax on the chrome ore production cost and a 300% tax to upper group two (UG2) operations, many of which were community based.
“By imposing a tax, we will be effectively imposing a ban on chrome ore from South Africa,” he told Mining Weekly Online.
The net effect, he said, would be the collapse of the internal chrome ore price, as had happened following the ban of raw chrome ore exports from neighbouring Zimbabwe.
“My opinion is that this is a very delicate matter that needs to be debated with all chrome stakeholders.
“We hold 65% of the world’s chrome reserves, but only have 50% of the Chinese market. Is it being suggested that we give up this share of the market and let the Chinese buy from other sources?” Ellwood queried.
The hard-hit South Africa ferrochrome industry, which has already temporarily closed 30% of its furnace capacity, has asked the South African government to impose the tax as a short-term relief measure.
Last year South Africa supplied more than half of the 9.4-million tons of raw chrome ore that China imported, with this country’s 300 000 t supply loss exactly matching China’s 300 000 t gain.
Half of the South African supplies to China arose from platinum miners producing chrome as a byproduct of their mining of the UG2 reef, 30% from integrated ferrochrome producers and 20% from independent chrome-ore miners, Elliot said.
Xstrata Chrome MD Deon Dreyer told Mining Weekly Online that the quick flow of ore coming in from the UG2 mining was at the heart of the threat to South Africa’s mature ferrochrome industry, which employed more than 200 000 people and which contributed more than R42-billion a year to South Africa’s gross domestic product.
Dreyer added that the industry had informed the government of the dire situation so that there would not be a repeat of the Eskom situation, in which the government only realised the full seriousness of the capacity shortage when it was already too late.
He did not want a situation of the industry one day being asked why it had neglected to highlight the full seriousness of the decline of the once-booming local ferrochrome business.
“But as the industry, we can’t lay down the rules. All we can do is highlight the crisis that’s facing our industry. It’s now up to the government to decide what action should be taken,” he told Mining Weekly Online.
However, Ellwood cast doubt on the county’s ability to provide the necessary power to meet its ambitious beneficiation aspirations.
“Assuming that there was the capital available internally to beneficiate all chrome ore to ferrochrome, or all manganese ore to ferromanganese or silicomanganese, where would Eskom find the required power and at what tariff?
“We are competing with new power suppliers across the world, one of them is Sarawak’s new 20 000 MW hydropower at around $0.04 cents per kilowatt hour,” Ellwood remarked.
Dreyer’s view was that an attractive ferrochrome business would entice producers to invest in their own competitive power capacity.
Investing in own generation was the norm elsewhere in the ferrochrome world.
“In India, those successful in ferrochrome have their own power plants. Create the right investment climate that provides the right returns and the power plants will follow,” Dreyer added.
India was formerly the biggest exporter of raw chrome to China until the Indian government clamped down on raw ore exports to facilitate local beneficiation, action that the South African government was now poised to emulate.
South African ferrochrome producers wanted the government to impose an export tax of $100 (R753.80) a ton on chrome ore, Stuart Elliot, the chief executive of Merafe Resources, said yesterday.
Elliot said the tax would be passed on to end-use consumers of chrome ore in China and Taiwan, which take 40 percent of Merafe’s production.
“The importance of the export levy is twofold. First, it will reserve the chrome ore advantage and competitiveness of South African ferrochrome production. Second, it will ensure that chrome ore exports attract… maximum value for South Africa,” Elliot said.
South Africa holds 72 percent of the world’s ferrochrome reserves but it has been losing market share to China, which has no reserves of the mineral.
Deon Dryer, a managing director at Xstrata, said in Business Day on Monday that China had increased ferrochrome market share from less than 10 percent in 2001 to 35 percent because of ore from South Africa.
Elliot said: “As ferrochrome producers we have come together to seek an intervention in the national interest of South Africa to protect this mature chrome value chain and reverse the trend of de-industrialisation.”
He said the ferrochrome producers would approach the Department of Mineral Resources with the proposed tax.
Zingaphi Jakuja, the spokeswoman for the department, said that it was engaging with industry on the proposed tax but no official position had been decided on.
Last June, the department adopted a beneficiation strategy that identified commodities for value addition such as iron ore, chrome, manganese, nickel and vanadium. The strategy seeks to address the import parity pricing of iron ore and steel to support the final fabrication process. Local ferrochrome mining has an annual capacity of 5 million tons and employs 20 000 people directly, but only 70 percent was beneficiated due to exports of raw ore to China.
Merafe Resources is the biggest producer of ferrochrome in the world through a joint venture with Xstrata.
Last month, the Xstrata-Merafe joint venture announced that it would suspend five furnaces as Eskom was experiencing tight supply. The power utility would buy back power from the venture.
Elliot said 30 percent of the furnaces in the ferrechrome industry had been shut because of the electricity shortage.
However, Mike Schussler, the director at Economists.co.za, said yesterday that South Africa should put the brakes on any plans to introduce export taxes on chrome ore until the challenges around power shortages were addressed.
“We do not have the electricity for benefication at present and Eskom is paying chrome exporters not to produce. Perhaps we should just say that until Eskom has enough electricity we should not have any export duties to encourage benefication,” he said.
Jabulani Sikhakhane, the Treasury spokesman, said changes to tax policy, or the introduction of new taxes, were announced in the Budget in February.
“However, the ferrochrome industry is free to engage with the Treasury on the proposal,” he said.
Local ferrochrome output declined 9 percent to 3.28 million tons in 2011, while Chinese production rose 13 percent to 2.5 million tons, according to data by market researcher Heinz H Pariser.
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.
According to China’s customs statistics, imports of chrome ore to China during January to October 2011 amounted to 874,619 tonnes, up by 1.4% YoY, taking a small break after the big gain in September. Domestic ore consumption is still stagnant, while ore stocks at the portside exceeded the 3 million tonnes level at the end of October, and continued to rise to 3.39 million tonnes as of November 18th 2011. Price has kept its downtrend since several months ago.
Imports from South Africa and Oman, Albania increased while arrivals from Turkey and Australia were less.
Averaged unit price of the imported ore in September was USD 254.50 per tonne, down 3.2% from September, 5 consecutive month drops. The increased imports from South Africa, Oman and Albania were all lower priced than the preceding month.
Import of ferrochrome in October was 108,290 tonnes, up by 29.7% MoM from 83,489 tonnes in September. Import of high carbon was 108,244 tonnes (up 29.7% from September) and import of medium low carbon was 46 tonnes (only 2 tonnes in September).
(Sourced from TEX Report Limited)
Earlier this month, India’s steel ministry, concerned over the depleting reserves of chrome ore, called for a complete ban of its export. The ministry warned that the country may soon run out of the costly steel making input if it failed to plug exports. The article said that India had roughly 50 million tonnes of charge chrome grade ore but the country’s reserves are said to have depleted to 38 million tonnes.
Mr PK Misra steel secretary of India told Indian Express newspaper said that “Despite this low reserve base, we are exporting nearly 500,000 tonnes of chrome ore a month. So, we are categorically in favor of a ban on chrome ore exports and have conveyed our opinion to the concerned departments.”
India’s announcement came months after South Africa, the world’s largest exporter of chrome, said it wanted to ban chrome exports to China. India is the world’s third largest chrome exporter. Along with Kazakhstan, the world’s second largest producer, the three countries account for around 80% of the world’s production of chromite ore, which is used to make stainless steel to pigments to finish metals to plating.
The Indian government, which had until now enforced several restrictions against exporting chrome ore, is now calling for a total ban for the first time.
Mr Mark Beveridge, a market research analyst at Paris based International Chromium Development Association, said that “Speculation about export bans, particularly in India, is pretty common. That being so, I don’t think there is anything to say on this until we get confirmation that either country is actually going to do something.”
The National Union of Mineworkers in South Africa in September called for urgent restrictions on chrome exports, especially to China. The union said China was stockpiling chrome, mainly sourced from South Africa, to dictate future market prices, adding that of the 8 million tonnes of chrome ore imported by China in 2010, about 3.1 million tonnes were sourced from South Africa.
Mr Beveridge said that “South Africa’s authorities are thought to be considering the implications that a chrome ore export ban would have. It is by no means clear at this stage that they will actually recommend any restrictions or duties on chrome ore exports. Indian authorities are also reported to be considering an extension to the ban they already have on exporting certain types of chrome ore. But, as with South Africa, they have not actually said they will be making any changes.”
Experts say it is hard to gauge what kind of impact a chromium ban would have on the markets as the metal is not traded on major metal exchanges. Trades are included in bulk-steel trades in an over the counter deal or the price of the metal can also be negotiated between parties.
Some chrome producers themselves have also called for a ban of the metal to China from South Africa. Stuart Elliot, the chief executive officer of Merafe Resources, a South African chrome miner, said in a recent interview that the rising level of South African chrome exports to China was of huge concern, adding that exporting South African chrome ore cheaply to China improved the competitive position of the Asian country’s ferrochrome industry to the detriment of South African producers.
Whether these bans lead to shortage and price increases is still to be seen. But with global stainless steel production at an all time high of 35 million tonnes in 2011, demand for chrome ore is expected to rise, according to an article in the Wall Street Journal. The article added that supply conditions may drive up prices of ferrochrome and chrome ore in 2012 as China is expected to see chrome ore shortage after Zimbabwe banned export of the metal to China. The outcome of India and South Africa’s move could tip the scale either way.
(Sourced from www.resourceinvestingnews.com)