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Chrome producers want ferrochrome solutions that exclude export tax

Phoevos Pouroulis Even if a tax were imposed as a temporary measure, the damage to non-integrated chrome producers would be permanent
Alistair McAdam  We’ve not been engaged with on the proposed chrome ore tax
Andries van Heerden We need temporary relief in the form of a tax to survive
Electricity Electricity pricing in US dollars has remained flat over the last decade.

ChromeSA spokespersons interviewed by Mining Weekly’s Martin Creamer. Video: Darlene Creamer.

Phoevos Pouroulis Even if a tax were imposed as a temporary measure, the damage to non-integrated chrome producers would be permanent

Photo by Creamer Media

Alistair McAdam We’ve not been engaged with on the proposed chrome ore tax

Photo by Creamer Media

Andries van Heerden We need temporary relief in the form of a tax to survive

Electricity Electricity pricing in US dollars has remained flat over the last decade.

4th December 2020

By: Martin Creamer

Creamer Media Editor

     

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South Africa’s non-integrated chrome ore exporters want to discuss ways of solving the existential threat to South Africa’s struggling ferrochrome industry to avoid the need for a tax being imposed on the export of locally mined chrome ore.

But steadfastly in favour of a chrome ore export tax are South Africa’s ferrochrome industry spokespersons, who fully support the October 22 announcement by the Minister in the Presidency, Jackson Mthembu, that Cabinet had proposed that a tax be imposed on the export of chrome ore from South Africa.

Currently, 84% of cross-border chrome ore is exported from South Africa, with lower- percentage participants including Turkey at 9%, Albania at 3%, Pakistan at 2% and rest-of-world countries at another 2%.

ChromeSA representatives David Kovarsky, Phoevos Pouroulis and Alistair McAdam presented a collective suggestion to Engineering News & Mining Weekly in a Zoom interview that the struggling ferrochrome industry should be given a special electricity dispensation rather than export tax protection.

But they cannot say much beyond that, as they are not legally permitted to enter into holistic discussion on additional solutions until they receive an applied-for but not-yet-granted exemption to do so from the Competition Commission.

In the meantime, ChromeSA’s firm collective belief is that an affordable electricity tariff would allow the ferrochrome industry to regain the market share it has lost.

“The benefit of a chrome ore tax is just going to be whittled away by increasing electricity tariffs,” Kovarsky, a seasoned former ferrochrome producer, who now speaks on behalf of chrome ore exporters, contended.

“Introducing a tax will not, in the longer term, give ferrochrome any benefit at all. It’s like prescribing the wrong medicine for an illness,” McAdam, also a former ferrochrome executive of long standing, concurred.

And even if an export tax on chrome ore were imposed as a temporary measure, the damage to the non-integrated chrome ore mining companies would be permanent and result in job losses, Pouroulis warned.

But the ferrochrome industry expresses strong views in the exact opposite direction: “We need temporary relief in the form of a tax to survive,” Richards Bay Alloys CEO Andries van Heerden emphasised in a written response to Engineering News & Mining Weekly.

ChromeSA’s contention that significant volumes of South African chrome ore would be displaced with supply from other sources were fundamentally wrong, Van Heerden contended.

"China cannot simply replace South African ores. There are no economically viable sources of chrome ore internationally that can replace the volume of South African ore,” he said. Also supporting the imposition of a tax on the export of chrome ore are:

  • South Africa’s six other ferrochrome producing companies, which consume 8.2-million tonnes of chrome ore a year, employ 6 851 people directly, support 68 000 jobs overall, contribute R41-billion to South Africa’s gross domestic product (GDP), pay R14-billion a year to Eskom, have pay-as-you-earn tax payments of R1.4-billion, buy 2.5-million tonnes of product a year from 20 South African reductant mines, and accord R42-million a year in social support and local enterprise development;
  • the 1 177-employee Tendele Coal Mining, along with another five South African anthracite producers, which collectively provide jobs for another 3 800 employees; and
  • the 1 500-employee Columbus Stainless of Mpumalanga, which produces stainless steel locally from the locally produced ferrochrome.

Already five of South Africa’s ferrochrome smelters have either been shut down, liquidated or placed in business rescue. These smelters supported more than 31 000 jobs along with a yearly contribution of R11-billion to South Africa’s GDP.

Direct employment lost in the past five years totals 1 139 jobs. Another 1 608 jobs are currently at risk under Section 189 of the Labour Relations Act, and remaining at risk are another 5 243 jobs.

“We might not have all the answers for the ferrochrome business, but we do have some ideas that can assist, but we need the Competition Commission to give us that exemption. We have the Genesis report. It’s very good work, but we’ve not been engaged with on this by government. Essentially, they just continue to move ahead without us,” said McAdam.

Minerals Council South Africa

Minerals Council South Africa, the key role of which is to facilitate interaction among mining employers to crystallise desirable industry standpoints, represents both ferrochrome producers, who favour the imposition of an export tax on chrome ore, and chrome ore producers, who are opposed to it and believe affordable energy should be provided instead.

“So, the Minerals Council is fairly conflicted in terms of its structure and we can’t expect the council to particularly carry our voice forward. We have had engagements, or tried to engage, with the ferrochrome producers over this last six months, and with government, but we have not had any constructive engagement. We presented the reports to them but no one has essentially come back with constructive discussions on this,” McAdam said.

“We have written to all of the Ministers involved, asking for engagements. Sometimes it is envisaged that there will be discussions, but they have not been organised. The reason why we have applied for exemption from the Competition Commission is . . . some of those ideas are not allowed under the legislation. Even to mention them in a forum becomes problematic. They might not be the complete solution to the problem, but we believe they would assist,” McAdam added.

Threat of Substitution

“One of the key factors that is being underestimated is the ability for other regions to substitute, at higher prices, South African ore,” said Pouroulis.

“Turkey, Kazakhstan and India are, at the moment, not major suppliers of chrome ore because of where the current market prices are, but if you add a tax on top of a South African ore, which typically is a much lower quality with the metallurgical grade versus a Turkish, or even a Zimbabwean ore for that matter, we believe there’ll be much higher substitution of South African market share by up to 30%, which is a material number. You are talking close to 3.5-million and four-million tonnes of displacement and market share being lost.

“From my perspective, it doesn’t make sense to subsidise an ailing industry and penalise an industry that’s actually grown over the last ten years, that has invested into mining, which, as we know, has not been prevalent over the last decade. Now, they want to potentially jeopardise the future of that part of the value chain that is actually doing relatively well.

“That’s where I find it iniquitous that we haven’t been included in the discussion because we believe that collectively we can support the ferrochrome industry. But we can’t go through those ideas. We haven't even discussed them internally with our forum because of not having a competition exemption, but we believe that, collectively, we can assist in some shape, form or another, but it wouldn’t necessarily include a tax.

“What we’re saying as this forum is: let's just stop, let’s not run away with this idea that we believe is ill-conceived and the benefits overstated, and let’s just debate it holistically, including all interested and affected parties. That’s where we stand today. Whichever government department is responsible, let’s sit around the table, let’s go through the pros and cons of each and every alternative, and let’s find a collective solution,” Pouroulis added.

UG2 Profit Numbers Not Disclosed

While publicly listed PGM producers all provided detailed financial reporting, none reported financial detail on UG2 sales: “Is this because it is so insignificant, or is it a hesitation to reveal the cost of UG2 recovery from waste,” Van Heerden asked.

“All in all, the Genesis report, contracted by ChromeSA, has little or no input from the traditional LG6 chrome ore producers. It should therefore be disregarded in its entirety.

“We have always been upfront in acknowledging that power is, in fact, an issue and there is no denying it. Although the graph (attached above) shows that the pricing, in US dollar terms, has stayed flat over the last decade, the prices do make South Africa less competitive than before.

“We believe these will change as Eskom and government address the power issue. We think the biggest structural change in the next two years in South Africa will be growth in energy, with the private sector finally getting on board.

“There are estimates that the private sector will create at least 16 000 MW of generating capacity in the next three to four years and this will help to unleash further investments in industry. We need temporary relief in the form of a tax in order to allow for beneficiation to survive and partner with the private sector as well as Eskom. If one does not implement the tax, there will not be an industry that remains viable,” Van Heerden stated.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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