Kerr calls on rivals to stem manganese exports

[miningmx.com] – SOUTH32 CEO, Graham Kerr, has called on his firm’s manganese producing counterparts in South Africa to stem export supply in an effort to balance the market for the steel-making ingredient.

“There’s no doubt that China is re-balancing itself, but it is a well thought out strategy – even if it’s not always a well delivered one,” said Kerr in an interview with Miningmx on the sidelines of the Mining Indaba conference.

“Perhaps there’s been a more rapid decline in demand [for minerals] than hoped, but we are still talking about China’s economic growth of between 4% to 7%.

“So the problem for the industry is not demand, but supply. In South Africa, the manganese producers are all from the Kalahari area producing the same product, on the same kind of cost curve,” he added.

South32’s manganese producing assets are in Samancor, a company it shares in joint venture with Anglo American. The other market supply from South Africa is from Assmang, in which Assore and African Rainbow Minerals are joint venture partners, while Kalahari Manganese, a company in which the Industrial Development Corporation has a stake, is positioned to export the mineral.

Roughly 70% of total South African manganese production was losing money at current prices for the mineral, Kerr estimated.

On February 5, South32 announced it would write-down its South African manganese operations by some $200m.

Despite restarting its Hotazel manganese operations in South Africa’s Northern Cape province, the group would cut overall production 23% to 2.9 million tonnes a year with the loss of 620 jobs.

In an earlier presentation, Kerr told conference delegates that additional export rail capacity from South Africa was also unnecessary. “The last thing South Africa and the industry needs is increased export capacity,” he said.

“Whilst the building of new port capacity and expanding exports formed a good plan in the past when demand projections were more optimistic, the market dynamics have changed,” he added.

In terms of its market demand strategy, the state-owned transport and logistics utility, Transnet, is to spend R20bn expanding manganese rail exporting capacity 6%. South African manganese exports increased to just under six million tonnes in the 2015 calendar year, an increase of nearly 100% compared to 2009.

Kerr said Transnet’s plans did not take into account recent developments in the manganese markets where demand intensity for the mineral was expected to slow as demand for steel moderated, especially in China which accounts for half of world manganese ore demand.

“The challenge for manganese has been the fragmented growth in South Africa’s Kalahari basin over the past five years, leading to suboptimal outcomes in the resource, rail allocation, the export supply chain, and ultimately shareholder capital,” he said.

“This lack of industry discipline has led us to the painful consequences of a world where manganese is materially oversupplied,” said Kerr.