The TEX Report Topics < Ferro Alloys > Home
HOME >> Topics List >> December, 2011 >> 09 (Fri)
South African FeCr Producers To Polarize (2)
= Some difficult problems to be solved about the planned ore export restrictions =
(v) A report was given recently by McKinsey, a consulting/research company worldwide, to the major South African ferrochrome producers with regard to the possible restrictive measures against chrome ore exports from South Africa. The producers have long been urging to introduce certain measures on the ore export and appointed the consultant for a suggestion to implement the restrictions. In the report, McKinsey suggests several proposals to be presented to the government including imposition of US$100 per ton of the ore as an export tax, as an extreme action.

However, some informed observers say that this type of restriction such as the export tax may not serve to the ferrochrome producers as a good solution for them to survive. One of the reasons is that the parties who recently accelerated the ore exports from South Africa are mostly the ferrochrome smelters themselves who used to insist on the restrictions. Background of such a change in the smelters' attitude is, that (i) the smelters need to anyway dispose of the surplus ore from their own mining production during the minimal smelting operation period in winter, and (ii) those ferrochrome smelters who shifted their ferrochrome furnaces to produce manganese group ferroalloys are eventually required to find home for the output from their own chrome mines in order to maintain operation at the mines. As a result, the smelters must have found it more profitable to simply export the ores than producing ferrochrome on high costs. However there lie ahead several problems to be solved about the restriction, as the situation surrounding the South African mining and smelting industry is always changing. Ore export restriction may not be the optimal measure to solve the difficult issue.

Some export restrictions, such as an export quota, volume control by quality and export tax, are imposed to the chrome ores already in India, but the situation regarding the ore in India is different from the one in South Africa, i.e. chrome ore reserves in India hold only 1 - 2 % of world reserves, and India has a firm plan of increasing output of stainless steel in which ferrochrome is indispensable. On the other hand, South Africa holds about 80% of the world reserves of chrome ore, some of which are in a sense "dispensable" and, if saleable, contributing to the country. For reference, exports of the ore to China during the first 10 months (January through October) of 2011 was 3.877 million tons, up by 61.5% from 2.400 million tons in the same period of 2010.

(vi) As to the manganese ore produced in South Africa, mining business started primarily for export from the beginning by the big mining company (BHPB), who carefully built an export system through stable pricing by benchmark. On the other hand, chrome ore exporting business in South Africa in a large scale started only 1 or 2 years ago, helped by a sharp increase in availability of cheaper UG2 as the by-product from platinum ore processing together with the fast-growing appetite from China, however pricing of chrome ore is basically under no control and all up to the demand/supply situation.

South African smelters could be comfortably benefited by the US$100/ton export tax, which would make ferrochrome price immediately go up, but at the same time chrome mines in other countries would definitely increase mining production and the advantage of low-cost chrome ore of South Africa having huge reserves could be diluted.

(vii) The existing benchmark system was born on a mutual understanding of sellers and buyers that supplies of the very important South African charge chrome for the stainless steel industry had to be stably sustained by any means. This is the reason why the major European and Japanese stainless steel mills have been supporting the system, and will continue to support it through toward 2012, despite the recent turbulence against its viability.

Unfortunately however, it is true that the stable supply system of ferrochrome from South Africa is now undermined by the polarization among the South African smelters to one major versus the other minors. A good prescription for this issue is urgently required.
last modified : Wed 14 Dec, 2011 [10:34]
Copyright (C) 2004 The TEX Report Ltd. All Rights Reserved.