South African ferrochrome producers faced losing credibility as suppliers, as customer confidence took a dip because of the electricity cuts that producers are being asked to make, said Merafe Resources CEO Steve Phiri.

He explained that a 10% electricity usage decrease meant production losses of between 5% and 10%, which amounted to about 250 000 t/y and 350 000 t/y of ferrochrome lost in export.

“We will see increasing production from Khazakstan and India, who will take advantage of the gap made by South Africa,” Phiri said, adding that South African ferrochrome production would remain flat until about 2010 when new electricity supply would come on line and allow for expansions.

The cost of ferrochrome production in South Africa would also increase by at least 30% in 2008, he said at Metal Bulletin’s South African Ferro Alloy conference, in Johannesburg.

This was compared with China’s production costs, which would increase by about 50%, but in contrast to countries like Khazakstan where increases would not be as significant.

Phiri attributed these increasing costs largely to the increased power tariffs, which would raise the electricity price to 25,24c/kWh for ferrochrome producers. Other costs, including the price of coking coal, labour costs, transport and shipping costs, were also pushing up overall costs.

“If we don’t deliver more ferrochrome from South Africa, somebody else will do that,” echoed Samancor chairperson Dr Danko Konchar.

He added that in order to optimise the income for South Africa, the country should export beneficiated ferrochrome, not chrome ore, as this had a positive impact on income, job creation, taxes and so on.

The shortage of electricity made the option to export unbeneficiated ore more attractive, because more requests were coming in for chrome ore that could be beneficiated in China for example, to make up for the lack of ferrochrome coming from South Africa.

Phiri said that South African producers stood on a high moral ground to lower the export of chrome ore, because it is a mature industry.

“It cannot be correct that we have legislation in this country that promotes, as one of its core objectives, economic growth, job creation and promotion of beneficiation, that we are exactly against that for short-term benefits because of high chrome-ore prices that we get from China,” Phiri stated.

“We cannot have a situation where we have got continued, unrestricted export of chrome ore from this country, and as it is now, we have got a free-for-all situation. All the chrome ore scavengers globally are descending upon us and grabbing every raw material available, to produce their own chrome industry, at the expense of sustainability and the production of this mature industry in South Africa,” he added.

Delegates at the conference spoke of a possible government intervention in order to quell the “anarchic” export situation in the country, such as a restriction on export of ore like increased taxes, which could perhaps insulate the industry in the short-term.

POWER WOES

Eskom acting GM transmission key sales and customer services Algie Kiewitz said that in terms of electricity supply, South Africa would “be in trouble for a number of years to come”, and urged consumers to continue their efforts to reduce consumption.

Kiewitz also urged large customers to register their projects with Eskom as soon as possible, as supply constraints and the vulnerability of the generating system, were limiting new connections.

Eskom’s power supply to the ferrochrome industry had increased from about 200 GWh in 1992 to almost 1 200 GWh in January 2008.

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