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Chrome miners, ferrochrome smelters at odds over proposed ore export tax

23rd July 2021

By: Marleny Arnoldi

Deputy Editor Online

     

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Mining representative group ChromeSA and ferrochrome lobby group SaveSA Smelters remain at odds about the proposed implementation of a chrome ore export tax.

ChromeSA maintained in a statement released on July 7 that “destroying another industry” – referring to chrome ore producers – was not a solution to the challenges faced by ferrochrome smelters.

SaveSA Smelters responded on July 8, pointing out that India (through a 100% tax imposed on chrome ore exports) and Indonesia (through a complete ban on nickel ore exports) protected their value-add industries with great success, and questioned why this should not happen in South Africa.

Cabinet released a statement on October 22 in which it said it had approved measures to support the domestic ferrochrome industry, including through a proposed export tax on chrome ore.

SaveSA Smelters claims that chrome mining companies are often focused on gains at the expense of thousands of South Africans who have already lost their jobs. The organisation says it represents at least 17 000 people who have lost their jobs as a result of the continued closure of smelters across the country.

At this rate, 80 000 more jobs are on the lin

It adds that minerals are meant to facilitate sustainable transformation, growth and development of the mining industry, in line with the Mining Charter, but does not believe mining companies opposing the chrome export tax necessarily have these priorities at heart.

SaveSA Smelters is of the view that South Africa can leverage its position of having 73% of the world’s chrome reserves, with China importing 83% of its chrome ore from South Africa.

On the other hand, ChromeSA remains adamant that a chrome ore export tax will be devastating for independent chrome ore producers who rely almost entirely on exports to keep their doors open.

The group says increased sales into the domestic chrome market are unlikely to occur, given that there is an excess of chrome supply currently. It adds that South Africa does not have sufficient market power to increase the chrome ore price without losing market share in the export market.

ChromeSA highlights the possibility that China might draft a retaliatory trade policy aimed at South Africa or simply import chrome ore from elsewhere, even if this means investing in other countries’ mining sectors.

Commodity analyst CRU has also expressed concern over a chrome export tax, saying the tax could erode global market share for South Africa’s conventional chromite miners, as it would make them less competitive globally.

“An export tax could push South African conventional ore producers towards the higher end of the cost curve and above-average costs in Turkey or Zimbabwe.”

CRU adds that it is unlikely that China will let its smelter output falter, and the ban on Australian metallurgical and thermal coal late in 2020 shows that China is capable of using the commodity trade to protect its interests.

Dwindling Beneficiation

SaveSA Smelters says that, over the years, there has been a dramatic change in the ratio of alloy to ore produced in South Africa – from 0.32 t of alloy per ton of ore in 2005 to 0.18 t of alloy per ton of ore in 2019.

During this period, about 95-million tons of the ore produced in South Africa was not processed into ferrochrome.

Assuming 10% of chrome ore is used for nonferrochrome applications and based on a 2.3 t of ore per 1 t alloy requirement, this is equivalent to about 37-million tons of “lost” ferrochrome production in South Africa.

The organisation explains that, although a large portion of this production could have been produced locally, it does not necessarily mean that South Africa could have produced all this lost alloy during this time, as there were other constraints, including electricity supply interruptions.

Meanwhile, Chinese stainless steel production capacity grew from 8.6-million tons in 2008 to 30.7-million tons in 2019. This increased demand for ferrochrome fuelled a rise in exported ore from South Africa, especially upper group two as a by-product from platinum group metal producers.

This dramatic growth in Chinese production caught the major ferrochrome producers in South Africa by surprise and they were unable to keep pace with the necessary expansion – in part because of lengthy environmental-impact- assessment procedures.

Adding to this difficulty was the start of energy constraints in the wake of load-shedding. This helped China’s ferrochrome industry to grow bigger than South Africa’s.

Projections indicate that there will be an increase in ferrochrome demand of about 2.5-million tons over the next seven to ten years, of which a critical mass will come from outside China.

“Any demand outside of China will have to be sourced from the regions with chrome resources – South Africa and, to a lesser extent, Kazakhstan,” SaveSA Smelters highlights.

The organisation adds that it is unlikely that ore will ever be processed exclusively in South African facilities, but the intent must always be to process as much as the local resources will allow.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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