Johannesburg - China overtook South Africa as the world’s largest producer of steel feedstock ferrochrome in the first six months of this year, accounting for 33% of the 4.8 million tonnes produced globally, Merafe Resources [JSE:MRF] said on Tuesday.
Output in South Africa, once the biggest supplier, fell 15% during the first half of 2012 and accounted for 32% of the market, Merafe said, citing a report by market research firm Heinz Pariser.
“South African ferrochrome exports to China continue to be displaced by domestic Chinese ferrochrome production on the back of unbeneficiated chrome ore exports from South Africa,” it said, partly referring to ore sent to China by South African platinum producers.
Production in Africa’s biggest economy also fell sharply after deals signed with power utility Eskom in which producers agreed to reduce output and cut their electricity consumption in return for payment.
Merafe’s production fell 21% in the six months to the end of June after it had shut seven of its furnaces between February and May to help Eskom, which is struggling to meet rising demand for electricity.
The compensation provided by Eskom was adequate to cover for lost profits from the suspended output, the company said, with headline earnings per share for the period rising 62% to 5.5 cents. Headline earnings per share are the main profit gauge in South Africa and strip out certain one-time items.
Eskom struck the deals to avoid a repeat of blackouts which brought the mining industry to a standstill in early 2008 and cost the country billions of dollars in lost output.
Merafe, South Africa’s largest ferrochrome producer and a joint venture partner with London-listed Xstrata, said the industry was in advanced talks with the government to find ways to curb exports of unprocessed chrome to China, pushing for an export levy on unprocessed chrome as a short-term solution.
Merafe added that despite higher output from China, global supply of ferrochrome was expected to remain tight as any material produced in South Africa would only filter to the market by the end of the third quarter.
The company also said its flagship Lion II project to lift production at its Lion ferrochrome plant remained on budget and on track to be completed in the second half of 2013.
Shares in the company, down nearly 12% so far this year, were up 1.23% at 82c by 14:38, compared with a flat Johannesburg’s All-Share index.
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