[miningmx.com] – CAN some regulation of the mining industry make it
more competitive and more valuable to the South African economy? Two proposals,
floated by economist Iraj Abedian of Pan-African Capital Holdings, suggest that
intervention can preserve and even create jobs, although industry participants will
need convincing that his ideas can be implemented.
One is the establishment of a chrome exchange that would establish a floor price for
exporting and selling the metal to the domestic market. It would regulate flows and
ultimately help soften the effects of so-called “cheap’ exports to China that are so
hurting South Africa’s ferrochrome industry and threatening jobs and downstream
beneficiation of stainless steel products.
Certainly Abedian’s suggestion, made at the latest seminar in the Mining for Change
series, is a better alternative than slapping an export levy on chrome exports; a
move Abedian dismisses as “short-term and knee-jerk’ reactions. The issue of
practicality raises its head, however.
Similarly, Abedian’s suggestion that the platinum industry should reach, by certain
means, an industry-wide understanding of supply discipline – in other words, tailor
production to demand – falters on do-ability (and legality, given anti-trust laws).
Nonetheless, one wonders whether this was an idea discussed at the recent meeting
of MIGDETT that convened earlier this week to discuss sustaining the platinum
industry in these margin-strapped times.
A chrome exchange has support. Phoevos Pouroulis, Chairman of Tharisa which has
raised R1bn and intends to expand chrome production for use in the company’s
China-based smelter, thinks a chrome exchange could work. “We’re open to it; it
could be a solution,’ he says. It would certainly protect the market against metal
being dumped at below production costs.
But if you’re talking about a physical exchange, you need investment for
warehousing. A bank would have to provide its services as a clearing house. The
exchange would also have to be industry-owned, implying operational agreements,
and provide inclusiveness in a way Richards Bay Coal Terminal doesn’t. “It would be
much easier to do this in the coal market and even then, it’s not that easy,’ says
Bevan Jones, GM of the Johannesburg office of trading house, London Commodity
Brokers (LCB).
Jones should know. He’s been knocking on doors for well over a year now trying to
establish an inland coal terminal with price-setting index; effectively, similar in
intent to Abedian’s chrome exchange. “We’re making progress, but it’s tough,’ says
Jones, who adds that the chrome industry has obstacles that are perhaps not as
prevalent in the coal sector.
For instance, where would one establish a pricing point for chrome? For the coal
industry, Ermelo or some other long-standing freighting hub is a natural place to
establish an inland terminal. By contrast, it’s not so obvious for chrome, which only
picked up momentum as an export metal when the platinum mines saw the revenue
potential attached to it.
Abedian, who stressed that he was speaking in his capacity as an economist – he is
part-time advisor to the minerals resources department – hasn’t recently stumbled
upon the notion of an exchange; in fact, he’s been voicing his view on the matter for
several years.
The fact Abedian’s idea for a chrome exchanged hasn’t been picked up and
implemented is not to suggest that it’s a bad idea; but it is instructive. South Africa,
especially its government, is poor at anticipating how things might be. Commenting
on the low level of beneficiation in the South African minerals sector, Abedian
observes that the deficit in infrastructure should carry a major part of the blame.
