Over the last eighteen months or so, a number of South African producers either went into business rescue or reduced their ferrochrome output. At the end of the third quarter, chrome ore prices reached a six-year low, though by July, prices had rebounded to its highest levels since 2008, driven by Chinese demand and relatively low chrome ore inventory levels.
The recovery in chrome ore prices has coincided with the consolidation of the South African ferrochorme industry. This follows the closure of Tata (KZN), International Ferro Metals (IFM) and ASA Metals (ASA). Common to these three producers are that they were not fully vertically integrated.
Either they had no direct ownership of chrome ore assets (Tata) or they had relatively high cost mines. Mitsubishi has announced that it is ready to sell its stake in Hernic ferrochrome, which appears to face similar challenges to IFM and ASA, namely that of high cost ore production.
While South Africa boasts the largest chrome ore reserves in the world, as freight charges to China declined, the cost of shipping ore as a percentage of the overall cost of producing ferrochrome declined.
Consequently, those South African producers, without a captive chrome deposit and fully reliant on purchasing chrome ore in the open market, had little advantage over Chinese smelters that needed to both purchase ore in the market and ship it over to China. This, coupled with increased electricity prices and wages in South Africa, has eroded South Africa’s competitive advantage with respect to ferrochrome production.
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