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Ferro-Chrome Industry Of South Africa Has Faced Three Anxious Factors (1)
= Raising Electricity Fees, Slowdown In Growth, Problems Of China
South Africa has monopolized a 77% of chrome reserves in the world but South African producers of ferro-chrome have been suffering from the difficulties to operate at a profit. The benchmark price of South African charge chrome settled with stainless steel companies in Europe and Japan for shipments in July - September quarter of 2011 has been reduced by 15 US-Cents per lb. of Cr, which has become the very low price since January - March quarter of 2010, and this reduction of the benchmark price has a possibility to put a pressure on operations at South African producers, excluding some of major ones.

Major stainless steel companies in Japan and Europe did not intend to reduce the benchmark price of South African charge chrome for July - September quarter. The negotiations in Europe on price of charge chrome for the quarter had rough going as an exceptional case and were brought in July. In the course of time, Japan preceded this subject and settled the price for July - September quarter. In the last 30 years, by means of utilizing its advantages, South Africa had overwhelmed the ferro-chrome industry of the world and expanded their share in the global production of ferro-chrome through having driven the ferro-chrome industry in other countries to stop their production. However, the monopolization rate in the world production of ferro-chrome held by South Africa has retreated in the recent years. The share of ferro-chrome for South Africa was 42 - 43% in 2006 to 2007 but declined to 33 - 38% in 2009 to 2010. The main reason for this decline of the share is thought to be the regulations for supply of electric power enforced in South Africa.

An unexpected crisis of electricity occurred on the end January of 2008 in South Africa has come up to the surface and this trouble has caused the wall for projects to invest on a long run, because it has become difficult to secure new supply of electric power. The allocation of electricity for new projects in South Africa has been frozen for the 5 years until 2012. However, a possibility to extend this frozen allocation to 2015 is arising at present. Also, Eskom (Electric Power Corporation of South Africa) has raised sharply electricity fees from 2008 and the electricity fees in South Africa were once said to be lower than those in Canada but this change of electricity situation in South Africa has thrust the anxious factors to a growth of the industries to consume more electricity (such as ferro-alloys).

The anxious factors (a steep raise of electricity fees, a slowdown in growth and problems of China), which the ferro-chrome industry of South Africa has faced, have been focused.

(1)A steep raise of electricity fees = According to the data released by Merafe, the electricity fees (per 1 KWH on US$ base) as of 2010 applied to the countries to produce ferro-chrome are estimated to be <> South Africa : 6 US-Cents, <>Kazakhstan : 4 US-Cents, <> China : 8.5 US-Cents and <> India : 9 US-Cents. However, those as of 2015 are anticipated to raise to <> South Africa : 13.5 US-Cents, <> Kazakhstan : 5 - 6 US-Cents, <> China : 13.5 US-Cents and <> India : 11 - 11.5 US-Cents. An extent to raise electricity fees in South Africa is considerable. Eskom raised electricity fees by 20 - 30% per annum in the last 2 - 3 years. In order to cope with an expansion of the power demand from private sector, the supply of electric power to industrial sector has been obliged to restrict. Eskom has planned to withdraw the money invested in an expansion of the capacity for electricity by means of raising electricity fees.

This steep raise of electricity fees has included a big probability to make a difference between ferro-chrome producers of South Africa in their competition power, because the plants to consume less electricity for production of ferro-chrome are thought to exhibit an advantage. For a reference, the shares in production of ferro-chrome broken down by producers in South Africa are <> Xstrata : 41%, <> Samancor Chrome : 26%, <> Hernic Ferrochrome : 10% and <> Assmang, IFM and ASA Metals : 6 - 7% for each of them.

Xstrata (together with Merafe as a partner for Chrome Venture) has been developing the Premus Technology, which produces ferro-chrome by saving energy, and has launched the Lion Project. The first phase of this project completed in 2006 and has been producing 380,000 tons per annum of ferro-chrome. In addition, the second phase of the Lion Project is scheduled to complete in January - March quarter of 2013. The Premus Process reduces chrome ore by rotary kiln and this process is effective to decrease the consumption unit of electric power to 2,200 KWH / MT. The plants in South Africa, which have been producing ferro-chrome by the conventional process, are estimated to be 3,500 KWH / MT as the consumption unit of electric power. Even the plants in other countries than South Africa are supposed to have the consumption unit of 4,500 KWH / MT in many cases. Therefore, the Premus Process has had a definite advantage for the economical production of ferro-chrome.

Xstrata has possessed the five plants for ferro-chrome in South Africa but only the Rustenburg plant has been producing ferro-chrome by the conventional process (with annual capacity of 430,000 tons) and the total volume of electric power consumed at this plant has increased to a scale of approximately 3 times in comparison with that consumed at the Lion Project, which produces 720,000 tons per annum of ferro-chrome as the total of the first and second phases. The Premus Process has been originally developed by Xstrata and, particularly, the technology to reduce chrome ore by rotary kiln seems to be not allowable other companies to apply. The advantages of the Premus Process have been evaluated by the technique to blow fined coal into kiln and the operation of kiln.

When a steep raise of electricity fees causes to continue an dominance between South African producers of ferro-chrome for a long period, there is a possibility in the market to select and to reduce a number of South African producers. As far as this aspect remains, Xstrata is anticipated to be the sole winner of the ferro-chrome industry in South Africa. The whole growth and development of the industries in South Africa will result in a stabilization on supply of ferro-chrome from South Africa and, from this point of view, a recovery of the profitability for production of ferro-chrome (to rise its price) has a necessity. (To be continued)
last modified : Wed 10 Aug, 2011 [11:24]
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