Johannesburg - Government is anxious to see the refining of
more of South Africa's raw materials, and chrome is the ideal product in this
respect because South Africa has a virtual monopoly on the metal.
Two factors, the rising price of chrome ore overseas and
rising electricity prices in South Africa, are spiking government’s guns.
According to the Merafe-Xstrata partnership, South
Africa and the world's biggest ferrochrome producer, higher electricity prices
are threatening to make the beneficiation of chrome ore so expensive that it
would be more profitable to export the ore where it is currently fetching
exceptional prices, particularly in China.
Producers of the metal are exiting the country.
Among other things, chrome is an important raw material for
stainless steel.
South Africa has the lion’s share of the world’s chrome ore
in the Bosveld Complex, the ore body containing most of the world's platinum.
The biggest global players in the production of ferrochrome
and refined chrome ore have therefore set up shop in this country.
South Africa's dominant position is however being threatened
by Chinese competition, even though China has virtually no chrome ore
resources. Chinese industry is growing with ore imported from South Africa.
India, which until recently was still China's biggest source
of this ore, has since 2007 imposed export restrictions, resulting in the
drying up of this global market source. As a result prices, of chrome ore shot
sky-high, making chrome ore exportation highly desirable.
Even Zimbabwe, which produces a modest amount of chrome ore
and ferrochrome, this year placed a ban on ore exports.
South Africa’s ferrochrome producers have since 2005 in vain
been asking for similar measures to stem the exodus of ore exports.
Exports of chrome ore have risen 888% - from a low of 502
000 tonnes in 2003, to 4.96m tonnes in 2010 - and this figure is likely to grow
this year.
In 2004 China purchased only 8% of the then modest export
volumes. In 2010 it took 75% of the burgeoning volume.
According to Japanese metals news service Tex Report, last
year South African chrome ore went for about $247/tonne in China, but in South
Africa it costs less than $100 to produce.
These are great profit margins.
The massive leap in exports to China gives rise to two
problems. First, it makes the ore for local smelters expensive.
Further, the rising price of electricity has swelled the
operating costs of ferrochrome smelters, making it difficult for them to
compete, despite the local abundance of chrome.
On Monday Mike Rossouw, who chairs the Energy Intensive User
Group (EIUG), which consists of Eskom’s 36th biggest clients, said at a
presentation that the ferrochrome industry was busy fleeing the country.
Although South African electricity tariffs are still cheaper than those in
China, by 2015 Eskom's tariffs will catch up.
Francois Coetzee, the manager of Merafe-Xstrata’s Boskop
smelter, told Sake24 last week that the industry was quickly reaching the point
where Chinese producers would be able to buy their chrome in Rustenburg, ship
it to China and process it into ferrochrome, bring it back to Rustenburg and
sell it cheaper than that from the ferrochrome smelter right beside the mine.
Assmang has already converted one of its ferrochrome
smelters into the less energy-intensive production of ferromanganese and plans
to do so with another two as well.
South Africa’s country's ferrochrome groups, including
Xstrata-Merafe, Assmang, Samancor Chrome and International Ferro Metals, are
practically all attempting on the one hand to reduce their electricity
consumption, and on the other themselves establish supplementary
power-generating capacity.