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Ferrochrome prices continue to fall

SA’s ferrochrome industry is poised for a shaky start to 2020, as the price of the mineral continues to fall while the reliability of the country's electricity supply remains uncertain.

Ferrochrome is a mineral that is mostly used to produce stainless steel and specialty steels. SA is the dominant player in the global industry, accounting for about 72% of the world’s chrome reserves.

According to Merafe Resources, the industry employs about 200 000 people in SA, directly and indirectly through linked industries.

On Monday Merafe, which holds a 20.5% interest in the Glencore-Merafe Chrome Venture that operates several ferrochrome plants, said the European benchmark ferrochrome price will decrease by 1% in the first quarter of 2020 to $1.01 a pound. In the fourth quarter of 2019, price of ferrochrome stood at $1.02 per pound.

While the new settled price only reflects a 1 US cent decrease, it is now at 2016 lows. In 2019, the European benchmark ferrochrome price declined by 17.8%. The fall was largely driven by weak global demand for stainless steel. The weak demand was partly responsible for the 29% decrease in ferrochrome production by the Glencore-Merafe Chrome Venture for the third quarter of 2019, the last production update published by the company.

Electricity woes 

The compounded effect of price decreases will probably be a secondary concern for SA ferrochrome producers, after Eskom announced on Sunday and again on Monday that the country’s electricity system remains “constrained and vulnerable” with breakdowns above 13 000MW, more than a quarter of SA's nominal capacity.  

President Cyril Ramaphosa, in mid-December, only gave a commitment that there would be no load shedding between December 17 and January 15, 2020. This means that from mid-January onwards the possibility of blackouts remains.

Merafe was among mining companies that expressed concern about the return of load shedding early in December. It said that coupled with a challenging economic environment, load shedding was expected to have a negative impact on the future economic viability of some of its operations “and the wider ferroalloys sector in South Africa”.

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