Owing to low levels of competitiveness as a result of years of uncontrolled power price escalations and lack of duties related to imported alloys and finished goods, the domestic ferroalloys sector is in a state of rapid decline, says industry body Ferro-Alloy Producers Association (FAPA) chairperson Nellis Bester.

The industry’s decline is driven by a combination of structural factors including rapidly escalating electricity costs, logistics constraints, increasing international competition from countries with significantly lower production costs, unprotected importation of goods and uncertainty surrounding long-term industrial policy, he adds.

Bester emphasises that although the recently introduced electricity pricing relief for the ferrochrome industry is a welcome and positive step, it has largely served to prevent further decline rather than create the conditions needed for renewed growth. As such, he says it should be regarded as a short-term measure rather than a long-term solution.

South Africa’s silicon and manganese alloy sectors continue to experience significant challenges, with several operations already suspended and others facing the prospect of permanent closure, says Bester, adding that unless decisive action is taken by government and State-owned power utility Eskom within weeks, the sector will decline further with direct impact on rising unemployment figures.

The steps needed to secure the future of such smelters include a competitive electricity tariff, importation duties, improved commodities logistics options and better infrastructure to service smelters to decrease carbon footprints.

Besides power constraints and rising costs, other impacts stifling growth and the sustainability of ferroalloy smelters in South Africa, include rail inefficiency and port congestion for exports.

This means expensive road transport alternatives are increasingly needed, thereby extending delays in exporting goods to international customers, he says.

Bester says that logistics inefficiencies and rising fuel costs, particularly within the rail and port systems, have increased transport costs, reduced reliability and delayed export timelines to international customers.

Industrial policy certainty is equally important, with large-scale smelting investments requiring confidence that competitive operating conditions in South Africa will be maintained over several decades, he points out.

While South Africa possesses “world-class mineral resources, technical expertise and installed smelting capacity”, Bester says these competitive advantages are increasingly being outweighed by structural cost disadvantages that can, and should, be addressed through coordinated government and industry action.

As a whole, poor infrastructure, high electricity tariffs and the lack of competitiveness must be addressed by both government and key role players in the sector, he adds. What is needed is an immediate short-term intervention that could be supported by a medium- to long-term permanent solution that is already in development.

However, while the ferroalloys industry is not seeking permanent support or protection, he says a competitive operating environment that allows South African producers to compete fairly with international producers will serve to preserve hundreds of thousands of skilled jobs.

Furthermore, while import tariffs on finished products have been under discussion for more than a decade, Bester notes that the only successful outcome to date has been the implementation of some tariffs on limited steel finished goods.