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SA chromite exports frustrate Xstrata
Allan Seccombe
Posted: Tue, 18 Jul 2006
[miningmx.com] -- Xstrata hopes Chinese ferrochrome production is going to peak at a million tonnes a year, and it has asked the South African government to intervene to bring down the amount of chromite ore leaving the country for the world’s largest stainless steel maker.
Xstrata has agreed a 4.75 cents rise in its ferrochrome prices for the third quarter of 2006, bringing the reference price to $0.75/pound after three tough quarters, Deon Dreyer, the MD of Xstrata’s chrome division, the world's leading ferrochrome supplier.
“I expect a rollover in prices in the fourth quarter,” he told reporters visiting the company’s 360,000 tonne Lion Project at Steelpoort in South Africa’s Mpumalanga province.
Exports of South African chromite ore have risen from 50,000 tonnes some years back to around 400,000 tonnes last year, while utilised capacity in the world’s largest
ferrochrome supplier has slipped to 77% from 89% in 2004, he said.
"South Africa is a logical place to make ferrochrome, so it's bit of a frustration for us," he said.
China last year consumed a million tonnes of ferrochrome out of global consumption of 5.6m tonnes. China upped output of the ingredient in stainless steel to 700,000 tonnes from 300,000 tonnes to take advantage of higher prices. The sudden output increase caught the market by surprise, Dreyer said.
Xstrata has taken a decision it will only export ferrochrome and is critical of other producers, namely Kermas, which recently bought BHP Billiton’s Samancor, of selling chromite ore to the Chinese instead of keeping it in South Africa.
Dreyer argued that South Africa was better suited to make ferrochrome than China, which does not have its own chromite deposits and has “swing production” that can be brought on stream when ferrochrome prices are high and cool the market rapidly,
creating headaches for longer-term producers.
South African sales of ferrochrome to China have dwindled to virtually nil this year because of that country producing its own.
The government has responded sympathetically to Xstrata’s concerns about chromite exports, but said it is difficult to act because the industry is sending it different messages, Dreyer said.
“Life would be a lot easier if we all cooperated on this,” he said, explaining it would be difficult because companies were afraid of being accused of anti-competitive behaviour.
The South African government could impose an export tariff on chromite exports that would cancel out the Chinese tariff structure that favoured imports of chromite above ferrochrome.Dreyer estimated that chromite sells for up to $170/tonne CIF China compared to $1,200/tonne for ferrochrome.
Xstrata expects Chinese ferrochrome production to peak at a million tonnes, leaving global ferrochrome producers
a market in that country of 1.5m tonnes by 2010.
South Africa’s share of global ferrochrome supply has shrunk to 42% last year from 50% the year before.
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