MERAFE Resources could mothball up to two-thirds of ferrochrome production in terms of a business review which is expected to be completed by May.
Zanele Matlala, CEO of Merafe said between six to eight of its remaining 12 operating furnaces are at risk. Ten furnaces at its Rustenburg and Lydenburg ferrochrome complexes have already been idled, she said.
A near 700% increase in electricity prices over the last seven to eight years was the main cause of the reduction in Merafe’s ferrochrome production.
The Glencore-Merafe Joint Venture, in which Merafe has a 20.15% stake, produced about 1.5 million tons of ferrochrome during the 2024 financial year (301,000 tons attributable to Merafe). This compares to installed capacity of 2.3Mt/y.
In the event of further cuts, the Glencore-Merafe JV would effectively become a chrome ore producer landing a major blow to South Africa’s beneficiation ambitions.
Japie Fullard, head of Glencore’s ferroalloys division, said the JV would produce twice as much chrome ore as ferrochrome were it not to convert. “We think it is in the interests of South Africa that we convert (ore to ferrochrome) wherever possible” but the business was losing cash given current electricity costs.
He said the JV was in discussions with the South African government about procuring “other interventions” as well as an already agreed negotiated price agreement (NPA) which gives the business some electricity cost relief. He did not give further details.
Were Merafe to convert to near total chrome ore production, it would place additional pressure on South Africa’s rail capacity but he added that the export volumes could still be managed “by various channels”, said Fullard.
“There are no decisions yet on which furnaces could be closed,” said Matlala when asked if furnace closures could extend to the JV’s state-of-the-air Lion Complex. “We are looking at six to eight furnaces that could be idled,” said Matlala. “We have already got ten on care and maintenance.”
Resources posted a 62% decline in full year earnings ended-December owing to a hefty decline in ferrochrome sales and a rise in costs.
Its numbers were also impacted by the R575m write-down of its Boeshoek smelter which has resulted in a review of operations amid ballooning electricity prices.
Merafe declared a final dividend of R200m (eight cents per share) bringing total dividends for its 2024 financial year to R700m (2023: R1.05bn). The company had cash of R1.8bn comprising R603m in cash held by Merafe and a R1.2bn share held in the JV as of December 31.
Sales fell 9% to 298,000 tons (2023: 327,000 tons) which contributed towards a 14% decline in ferrochrome revenue, also influenced by a 6% decline in prices. The outcome at the headline earnings level was a 29% year-on-year decline to 42.9 SA cents per share.
“Earnings slumped by 62% to R667m, after the full impairment of the Boshoek smelter of R575m,” said Merafe in notes to its published numbers. “Ferrochrome prices were impacted by surplus supply as a result of new Chinese production capacity,” it said.
Commenting on the ferrochrome market, Merafe said strong growth in stainless steel demand was offset by a 25% surge in low cost Chinese ferrochrome production. This “significantly compressed global smelter margins,” said Merafe.
“Consequently, the ferrochrome oversupply resulted in a sharp decline in ferrochrome prices during H2 2024, which in turn led to a decrease in chrome ore prices,” it said.
