Ferrochrome: In my view, we’re fairly close to possible solution – Glencore Alloys CEO

This audio is brought to you by Astec Industries, a Global Leader in manufacturing equipment for infrastructure, including asphalt production, construction, and material processing, driving innovation and sustainability. "We are, in my view, fairly close to a possible solution," Glencore Alloys CEO Japie Fullard said during Merafe Resources question time earlier this week amid South Africa going all out to prevent the opportunity in what had once been a highly successful ferrochrome value-adding role from slipping out of its grasp. Last year, South Africa produced in the region of 27-million tons of chrome ore but could only convert seven-million tonnes of it into 3.5-million tons to 3.6-million tons of ferrochrome. What lowers logistics constraints significantly is that two tons of raw chrome ore become one ton of ferrochrome - but this advantage is also diminishing substantially. Ferrochrome is a five-times multiplier of raw chrome ore value, and South Africa hosts chrome ore in greater volume than any other country in the world. Even though the demand outlook for ferrochrome is good, South Africa is increasingly switching to the exportation of the five-times-lower-valued raw chrome ore, and this is providing its global ferrochrome competitors with a greater and greater opportunity to benefit from the fivefold value-add that South Africa is turning away from. Questioned by Mining Weekly on how much benefit for ferrochrome's future would be obtained from being in a special economic zone or a special resource zone, Fullard recalled that the South African government committed to looking at ways to revitalise ferrochrome beneficiation in South Africa in a statement on June 25. (Also watch attached Creamer Media video.) In that statement, the government referred to a couple of potential remedial mechanisms, the first being cheaper electricity. Already in place is the negotiated price agreement (NPA), but unfortunately the NPA is still not doing the trick. "We need an electricity tariff that's even better than what we're seeing now, and we're working with government to find solutions around that. "The second mechanism is to include energy-intensive users, such as the ferrochrome industry, into special economic zones, or special resource zones, which is what the new terminology is, which will entitle ferrochrome producers to certain benefits and tax breaks. "For instance, we know that in a special economic zone, the company tax would be 15% versus where it is currently at 27% and there are also employee benefits as well, so those would be the types of initiatives that the government will be looking at in terms of some of those solutions," Fullard pointed out. Compared with China, there is currently a 10c- to 15c-a-pound difference in the conversion margin of Glencore-Merafe Chrome Venture when converting chrome into ferrochrome compared with that of China. Mining Weekly: What price of ferrochrome would be required to get the smelters going again? Merafe CEO Zanela Matlala: It always depends on what the chrome ore input price is and also exchange rate. But given where we are with those, what is clear is that at the current prices of about 89c/lb or so, it's not sustainable for us to produce ferrochrome at those levels, but probably at a price of, say a $1/lb, it might make sense. But it also depends on the other input sectors. Mining Weekly: What's your view on Eskom charging lower prices for electricity for smelting when ferrochrome prices are down and higher prices when ferrochrome prices are high? Matlala: That's already something that is catered for in the current NPA, so it's a concept that works. When prices are low, you reduce the cost of electricity, and then when prices are better, you share those profits with the utility provider. DEMAND OUTLOOK Ferrochrome is the key ingredient of stainless steel and questioned on the outlook for stainless steel demand and ferrochrome demand, Merafe FD Ditabe Chocho said: "We rely on r...