Chromium: South African ore export tax approved
roskill.com
Posted 23rd October 2020 in ?Industry news.
By Nils Backeberg
The South African government has approved an export tax on chromite ores, alongside energy-focussed efficiency, cogeneration and self-generation measures to try and support the country’s ferrochrome industry. This follows months of speculation surrounding its possible implementation.
Roskill view:
The South African ferrochrome industry was once the largest and most technologically advanced in the world, built around the geological heritage of the Bushveld Igneous Complex that endowed the country with over 60% of the world’s chromite resources over two billion years ago. Today, however, nearly half of the world’s ferrochrome is produced in China to feed the country’s burgeoning stainless steel industry, without any significant domestic chromite resources to speak of. Given South Africa’s large resources and competitive position on the ore cost curve, the Chinese ferrochrome industry has been developed around South African chromite, accounting for 70% of imports in 2019.
The growing use of cheaper platinum group mineral by-product UG2 chromite in China and the rapidly increasing electricity tariffs in South Africa has supported the development of ferrochrome capacity in China, with the cost of production in the countries now at relative parity and tipping in favour of Chinese plants. The idea of an export tax on South African chromite ores is to shift that balance back in favour of South African plants and resurrect the industry. But can that be sustained?
Many South African ore producers operate in the upper part of the cost curve and an export tax will increase competition with other chromite resources globally and some market share will likely be lost. Despite this, South Africa’s dominant position as a chrome ore exporter, coupled with the cost-competitiveness of large volumes of production, means that South African chromite will continue to form a baseline of global supply. Although some South African supply may be rendered uncompetitive by the new tax, a large portion of South African supply is likely to remain in place and the Chinese industry will have to absorb the costs downstream.
Then there is a question of how the South African ferrochrome industry can be “saved”. Electricity tariffs have increased over 300% in US$-terms over the last 15 years (worse in South African Rand terms) and a further 15% hike in tariffs is already approved for April 2021 with more to follow. It is still hard to see new ferrochrome capacity being built in South Africa as a result of the export tax. In contrast, without any support from electricity providers the ore export tariff may be a relatively short-lived delay in switching off the remaining ferrochrome capacity.
In Q1 2020, the South African government announced plans to ease regulations surrounding private power generation to allow industry to explore options outside of Eskom for power production. This weeks’ announcement appears to add weight to the governments announced intents on implementing and supporting regulations in support of co- and self-generation. While the Q1 announcement was keenly welcomed by the domestic mining industry, it remains to be seen how this may affect the cost structure of domestic ferrochrome producers and indeed whether there is an appetite to invest in private generation capacity at scale.
Roskill’s Chromium: Outlook to 2030, 16th Edition report provides you with up-to-date market insights on chromium supply, demand, trade and prices together with forecasts that lay out the fundamentals of the industry. Roskill is developing its NEW Chromium Cost Model Service, which will allow users to instantly model the impacts of ore taxes and other macroeconomic factors on the structure of the ore and alloy industry. For more information or to subscribe click here.
Contact the author This article was written by Nils Backeberg. Please get in touch below if you wish to discuss further:
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