Criticism rains in on SA Govt’s misguided proposal to tax chrome ore exports

A PROPOSED tax intended to incentivise the production of South African ferrochrome would hurt the country’s chrome industry, although it sent shares of one producer, Merafe Resources, a quarter higher, at least in the short-term.

The tax, one of several decisions taken at a South African government Cabinet meeting Thursday, will be placed on exports of chrome ore. Chrome ore is ‘beneficiated’ into ferrochrome, a key constituent in the manufacture of stainless steel.

South Africa last year supplied 12.5 million tons of chrome ore to China, roughly 83% of its total chrome imports, according to a report by Reuters.

By pushing up the price of chrome ore from South Africa, the world’s largest producer, the South African government hopes to revive the beleaguered ferrochrome sector, but critics of the plan say it misapprehends why the sector is uncompetitive.

Said the Minerals Council today: “A chrome ore export tax does not address the fundamental competitiveness issue (electricity) facing the ferro-chrome industry and may have material unintended consequences on the independent chrome ore producers.

“The critical component of competitiveness is the availability of a cost-effective and consistent electricity supply,” it said.

“The 523% increase in the electricity price in the last decade has resulted in Eskom’s electricity price to large industrial customers becoming globally uncompetitive, forcing the closure or mothballing of over 40% of South Africa’s ferroalloy production.”

Shares in Merafe increased to their highest level in three months owing to the short-term benefit of higher chrome ore pricing.

An industry body also criticised the proposals: “The Chrome Group is concerned about the possible adverse impact of the proposed chrome ore export tax on the chrome value chain, including on employees and communities,” it said in a statement cited by Reuters.

Chrome SA has applied to the Competition Commission for an exemption from competition regulations, in order to discuss the possible export tax in detail, and engage with government, as a group – behaviour which would otherwise be seen as anti-competitive.

Companies mining chrome ore in South Africa and represented in Chrome SA include Anglo American Platinum, Impala Platinum, Sibanye-Stillwater, and Tharisa, said Reuters.

The tax, if it is implemented, would have an impact on Chinese demand, and chrome ore prices globally would likely rise to account for it, said Dmitriy Ossinin, market analyst at metals trading firm Unichrome in Switzerland.