OPIS Insights

South Africa’s ferro alloys industry will need more than just cheap power to turn around years of losses and smelter closures.

The country’s energy regulator is expected later this month to approve a massive power tariff cut for major ferro chrome producers, industry officials said.

State utility Eskom has asked the National Energy Regulator of South Africa (NERSA) to approve a 29% cut in the power tariff for Glencore-Merafe Chrome Venture and Samancor Chrome.

Following weeks of back-and-forth negotiations, the two sides agreed to a power tariff of ZAR0.62 per kilowatt hour (kWh), which the industry has deemed a critical level to continue operating in South Africa without further losses. Anything above that would force the closure of most ferro alloys smelters.

“Sixty-two cents is not a silver bullet, it just gets us in the market,” Glencore Ferroalloys CEO Japie Fullard said at the International Chrome Development Association conference in Victoria Falls, Zimbabwe.

“Sixty-two cents is just breakeven because we compete against China, who are already at that rate. We cannot now sit back and relax – we need to work harder than ever.”

South Africa’s ferro alloys industry, once a global leader, has closed most of its smelters due to higher power prices and tough foreign competition. Over the past decade, Eskom’s power prices have surged 900%, making it much more expensive to produce ferro alloys in South Africa than in China, India and Kazakhstan.

“We make more money by just exporting our raw ore, but that is not what we want to do. We cannot export our jobs,” Fullard said.

The Minerals Council estimates that this deal could help revitalise the industry and create 17,000 jobs.

However, to achieve this, a longer-term solution is still needed as Eskom, which struggles with a heavy debt load, can’t afford to lose more revenue.

“With the current agreement they gave to us, Eskom is going to have to carry the burden and that is not sustainable,” Fullard said. “They won’t be able to give the 62 (cent tariff) to the rest of the ferro alloys industry.”

Outside of the ferro chrome industry, only three companies remain in operation but could be forced to shut within months. Ferroglobe is the last remaining silicon alloy producer in South Africa, while Transalloys is the lone manganese alloy producer and SPR Vanchem/Rhovan the only vanadium alloy producer.

To save the industry in the long term, industry officials said that the government needs to look at alternative solutions beyond Eskom that includes independent power producers and utilizing the country’s abundant coal reserves for thermal energy.