SA continues to slide in ferrochrome stakes

[] – SOUTH Africa’s share of the world ferrochrome market shrank further in 2013 despite efforts by the industry to have the country’s government consider protective trade measures.

Merafe Resources said in comments to its year-end results, in which comprehensive income increased more than 300% to R210.6m (2012: R48.9m), that South Africa’s share of world ferrochrome production fell to 32% from 34% in 2012.

“Chrome ore imports into China increased by 30% year-on-year to 12.1 million tonnes (mt), of which 6.7mt (2012: 4.5mt) was from a South African source,” said Merafe Resources. Global ferrochrome production was 10.2mt in 2013, 8% higher than in 2012. Ferrochrome is used in the manufacture of stainless steel and is therefore highly geared to industrial production growth.

As early as 2011, Merafe Resources raised concerns about the export of cheap supplies of chrome ore, partly by platinum producers which mine chrome as a by-product, to China. The contention was that this allowed the Chinese market to grow while the local market struggled, especially amid rising power and labour costs in South Africa.

It was further suggested that the South African government may consider an interim levy, possibly of R100/t, on chrome exports from the country. A series of meetings was planned with the Department of Mineral Resources and the Department of Trade and Industry, but to date nothing has transpired.

Merafe Resources said today China’s ferrochrome production grew 13% year-on-year to 3.8mt. It was estimated China produced half of the world’s stainless steel and 37% of the world’s ferrochrome making it the leading producer of both.

On the bright side, South Africa’s ferrchrome production grew 2% to 3.2mt in 2013 despite ferrochrome producers entering into buy-back programmes with Eskom in which they idled smelters in order to allow the electricity utility to deploy energy elsewhere in the grid. Eskom said it had not budgeted for buy-backs in the current year.

Merafe Resources’ strong financial performance was largely attributable to a one quarter increase in production to 314,00 tonnes and a 17% weakening in the rand/dollar exchange rate which rubbed out the negative effects of a 4% decline in the average European benchmark ferrochrome price to 116USc/lb (2012: 121USc/lb).

The company also said it was ready to start commissioning of its much-vaunted Lion II expansion although it had been “slightly delayed” owing to the scarcity of contractors over the December period, as well as wind and rain.

Merafe Resources has pumped about R1bn into Lion II which will lift its production an attributable 70,000 tonnes. It has a one fifth stake in the project with the balance of the funding (R4bn) footed by Merafe Resources’ joint venture partner, Glencore Xstrata.

“It is envisaged that the smelter will be fully operational by middle of 2014,” said Merafe Resources in its results commentary in which it added it still intended to become a dividend payer, and would seek to diversify from ferrochrome in time.