Time for chrome tax

[miningmx] — THERE was a time when Merafe Resources, its partner Xstrata Alloys
and other ferrochrome producers imported large amounts of metallurgical coke coal
from China. This was because South Africa mostly has thermal coal, which cannot be
used to produce coke. Coking coal is used as a key ingredient in smelting to produce
the beneficiated product called ferrochrome.

Then China decided it would restrict coking coal exports with a punitive export tax.
Local ferrochrome producers were forced to source coking coal from other suppliers,
which pushed up prices and increased the cost of local ferrochrome production.

At about the same time, China accelerated its imports of chrome ore from India and
South Africa so they could produce their own ferrochrome. India responded by
instituting its own export tax on chrome ore, cutting exports of the raw material to a
bare minimum.

As a result, its ferrochrome production increased from 634,000 tonnes to 1,025,000
tonnes per year; 26% of which is exported to China at a much better price than
selling chrome ore. India’s chrome ore exports dropped from 1.3 million tonnes in
2006 to 439,000 tonnes in 2011.

That left Chinese ferrochrome producers with no choice but to source the ore from
South Africa. South Africa has 82% of the world’s chrome reserves, including chrome
recovered from platinum production.

The chrome ore exported to China has since increased from 200,000 tonnes per year
in 2002 to 4.7 million tonnes in 2011. This has enabled China to build up its own
ferrochrome production from 532,000 tonnes a year to the current 2.5 million tonnes.
Because of this, South Africa’s share of the global ferrochrome market has now fallen
from 51% in 2001 to 37% in 2011.

This decline is likely to continue this year, while China will have grown its share of
ferrochrome production from 5% in 2001 to 37%, using our chrome ore.

Ever cunning in pursuit of their national interest, the Chinese are also making sure
that ferrochrome does not easily leave their shores. They have added an export tax
on it too.

That chrome is gone forever and will probably only come back as consumer products,
“made in China’ where environmental standards are less stringent than those of
the South African industry.

This has been the story of South Africa’s ferrochrome industry in the last six years.

This story is not in our national interest. We should be growing production and
increasing jobs – but unless something is done, the reverse is likely to continue to

South Africa is about to implement a beneficiation strategy that we fully support,
which seeks, among other things, to encourage the development of the stainless
steel value chain.

This downward trend in ferrochrome production is likely to compromise the goals of
that strategy, as the continued growth in the export of chrome ore is destroying our
mature ferrochrome industry. Ferrochrome is the key, irreplaceable ingredient in the
manufacture of stainless steel.

Employing directly and indirectly about 200,000 people, the ferrochrome industry
contributed approximately R42bn to gross domestic product and earned R36bn in
foreign exchange in 2010 alone.

This contribution is unlikely to be maintained, and is lower than it could have been if
the chrome ore was substituted with the value-added ferrochrome. By the end of
this year, we are likely to have exported more chrome ore and less ferrochrome to

This is why we are asking our government to consider a tax on the export of chrome,
even as a short-term measure. This is the same measure adopted currently by China
and India. Such a move would enjoy the support of all current ferrochrome
manufacturers. While we have to avoid reckless protectionism, it is nonetheless
important to recognise the importance of sustaining critical domestic industries like

Ensuring measures to effectively manage the export of chrome ore to China will not
harm either our economy or the global economy. The demand for stainless steel will
remain strong regardless, growing at about 6% a year for the coming years. This
means the demand for ferrochrome is guaranteed.

That is why China is increasing its own production and preventing any ferrochrome
from leaving its shores through an export duty. The only enemy is time. It is running
out quickly, while we enter the early stages of deindustrialisation.

If nothing is done, South Africa will lose an industry that is mature, has locally
developed cutting-edge technologies and contributes towards high-level industrial

Such an eventuality should not be allowed to develop.

Elliot is the CEO of Merafe Resources, a JSE-listed ferrochrome producer.

– The column first appeared in City Press.