SA’s ferroalloys industry facing destruction owing to unstinting electricity tariff increases

SOUTH Africa’s ferroalloys industry faced “destruction” owing to a sixfold increase in the electricity tariff provided by the country’s power utility, Eskom, said BusinessLive.

“We are a dying industry,” Nellis Bester, chair of South Africa’s Ferro Alloys Producers Association (Fapa), told the publication.

In the past three years, 40% of South Africa’s ferroalloy capacity has been idled because it is no longer competitive, primarily due to a more than sixfold increase in electricity tariffs for heavy users such as smelters, mines and large industry, said BusinessLive. Electricity accounts for up to half of the cost of running a furnace.

The sector required affordable power and visibility of the rate of increase in the tariff.

“Without bridging this gap with support of the government to pave the way for long-term pricing incentives or framework … there will be no smelter remaining in South Africa in two to three years,” said Bester.

“Once closed, there’s no possibility of a restart. It will simply be too expensive,” he said.

In September, ferrochrome producer, Merafe Resources, booked an impairment of R1.34bn in the first six months of its 2020 financial year owing to Covid-19 related production stoppages. But production was also lower as the firm idled facilities amid unstinting increases in electricity.

Commenting in its market review, Merafe said “… unsustainably high electricity pricing” was a major feature of the six months ended June 30. Total South African ferrochrome production had halved in the second quarter.

“Prices in South Africa have escalated 500% over 10 years. Under these types of increases, we will struggle,” said Japie Fullard, head of ferrochrome operations for Glencore in South Africa last month. “I can’t see how we can operate our smelters in that price environment,” said Fullard in a Miningmx article.

Merafe is in joint venture with Glencore.