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

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

SaveSA Smelters on July 8 responded by 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 question why this should not happen in South Africa.

Cabinet on October 22 released a statement in which it said it had approved of 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 owing to the continued closure of smelters across the country.

At this rate, 80 000 more jobs are on the line, the organisation laments.

The organisation says minerals are meant to facilitate sustainable transformation, growth and development of the mining industry, as per 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 and 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 as it stands. 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 it is means investing into other countries’ mining sectors, which South Africa need not risk happening.

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

“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 China will be unlikely to 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

Since 2005, there has been a dramatic change in the ratio of alloy produced to ore produced in South Africa. SaveSA Smelters says the ratio has fallen from 0.32 t alloy/t ore to 0.18 t alloy/t ore in 2019.

Between 2005 and 2019, 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 power supply interruptions.

All the while, Chinese stainless steel production capacity has grown from 8.6-million tonnes in 2008 to 30.7-million tonnes 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 owing to 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 smelter industry to grow bigger than that of South Africa.

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 of 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.

Depending on the definitions of nameplate capacity there are currently facilities amounting to about 1.2-million tons a year that are not in use. It is likely that the ore tax and its effect on the alloy price will act as a catalyst to, with some efficiency enhancement, bring back most of the dormant capacity.

A decade from now, SaveSA Smelters believes, it is unlikely that an ore tax will still be in place. Natural market forces should have ensured that South African ferrochrome producers have regained their rightful market share, evolving from price takers to price makers, based on sound supply and demand principles.