Junior chrome producers up in arms

Allan Seccombe | Fri, 06 Nov 2009 14:30

[miningmx.com] -- A GROUP of junior chromite ore producers are preparing to lobby South Africa’s parliament to counter a request by major producers for the state to impose quotas and a duty on ore exports.

The group, currently comprising eight junior companies, feel the proposal by the major players will destroy their businesses and they regard the request by the majors as protectionist and cartel-like behaviour designed to shield their operations while taking out the smaller firms.

Towards the end of October, a delegation representing Xstrata, Samancor, Hernic Ferrochrome, International Ferrometals and Tata Ferrochrome -- which together make up 90% of ferrochrome produced in South Africa -- asked the government to protect them from the ramifications of increased Chinese imports of ore.

The delegation asked for a duty of $100/tonne to be imposed on chromite ore exports and that only integrated producers (read ferrochrome producers) be allowed to export ore, which cuts out companies that don’t have furnaces to produce ferrochrome. It suggested those permitted to export be restricted to just 30% of their ore equivalent ferrochrome production capacity.

Some juniors, that are exporting only chromite ore at this stage because South African power utility Eskom is unable to provide them power for at least the next five to nine years, reacted angrily.

“These are classic bully boy tactics,” said an executive from a junior company. “The big mining houses want to beat the hell out of us little guys so we are getting together to lobby against the proposals they recently made to parliament.”

“By doing this it will kill the junior industry. We may be forced to sell to the majors and you can bet we wouldn’t get export parity prices,” he said.

A second executive said the proposals would protect the South African ferrochrome industry at the expense of smaller, independent companies, some of whom have intentions to move into downstream production but have had their hands tied by power constraints and so feel they are about to be unfairly penalised.

“It’s unbelievable that they [the majors] have got the audacity to want to block out everyone from this market except themselves, that their businesses are more important than ours. They want to bolt down this market for themselves. This is protectionism and cartel behaviour,” said the second executive.

Uncontrolled and incentivised by short-term gains

In reading the majors’ submission, it would appear it’s not the exports from the juniors that are troubling the majors too much but rising output from the platinum companies, which are mining chrome-rich UG2 reef, with most of that chrome currently going onto tailings dumps.

“South Africa’s status as the number one exporter of chromite ore to China is expected to remain unchallenged with the burgeoning potential of UG2 chromite resources held by the South African platinum industry,” the majors said.

“Uncontrolled and incentivised by short-term gains, UG2 chromite production from the South African platinum industry has the potential to grow from two million tonnes in 2008 to seven million tonnes in 2013,” they said.

South Africa's ferrochrome capacity is 4.4 million tonnes. There were no figures on its chromite ore exports.

The eight junior companies are setting up a forum ahead of lobbying the South African government in coming weeks and are hoping to bring other players into the forum. The two executives declined to say what their export tonnages are.

It’s an open question at this stage whether these juniors will be joined by the platinum companies that are adding chromite ore pelletising plants to their operations to generate another revenue stream.

CAUGHT IN THE MIDDLE?

The executive of one of the junior companies raised the possibility of China looking to other chromite producing countries because they’d not be able to afford the increased price of South Africa’s ore if the tariff is implemented and quotas enforced.

The first junior executive took umbrage at the majors’ definition of beneficiation, which is nothing less than ferrochrome. The view of the majors is that chromite ore includes metallurgical grade, chemical, refractory and foundry grades as well as UG2 grade chrome ore.

“We don’t sell chrome ore. We sell beneficiated ore,” the executive said, pointing out mined material was put through plants to produce a certain grade of ore. “What gives them the right to define beneficiation?”

Jacinto Rocha, the deputy director of mineral regulations at the Department of Mineral Resources (DMR) is understood to have said the government wouldn’t make a decision based on the arguments from just one group and invited input from others. He was not immediately available for comment.

The majors’ argument is that China is importing more chromite ore to refine domestically, reducing imports of ferrochrome that these major producers supply. South Africa is now the leading supplier of chromite ore. It is also the world's leading source of ferrochrome.

Chrome is used in the making of stainless steel and China is the world’s largest producer of the metal.

The majors said China’s ferrochrome industry had grown – largely on South African ore exports – while South Africa-based producers had cut back output in response to a plunge in demand at the height of the global economic crisis in the second half of last year.

South African ferrochrome producers are also facing increased electricity prices for their energy-hungry plants and a strong rand, making them less competitive. The majors said India imposed a tariff – now at $75/tonne -- on ore exports, which stimulated ferrochrome production in the country and sharply reduced ore exports.