Important South African sector suffering

South Africa has lost its position as the world’s largest ferrochrome producer, primarily due to its high electricity prices, which have increased by almost 900% over the past two decades.

Now, proposed government interventions to address this sector’s decline have been criticised for their lack of detail and potential to harm the industry they are trying to protect.

South Africa is currently the world’s largest producer of chrome concentrate, but it lost its position as the leading supplier of ferrochrome many years ago.

The Minerals Council of South Africa stated that China now holds this title, primarily due to the country’s structural advantages, including significantly lower electricity, labour, and capital costs.

“In contrast, South African ferroalloy smelters have increasingly been mothballed or shut, unable to compete with the substantial incentives offered by the Chinese government, most notably cheap and plentiful electricity,” the council said. 

The council attributed this to electricity prices in South Africa increasing by nearly 900% in the past two decades.

These above-inflation increases have led South Africa’s chrome industry to opt for exporting chrome concentrate rather than beneficiating it at a loss.

However, chrome mining remains a significant driver of economic growth in South Africa and one of the best-performing subsectors of the local mining sector. It is also a key ingredient in the manufacturing of stainless steel.

According to Statistics South Africa, in real inflation-adjusted terms, chrome production increased by an average of 8.4% between 1994 and 2024. 

For comparison, this represents significantly higher growth than the 1.3% increase in total non-gold production over the same period. 

The chrome mining sector has also consistently increased employment and contributed significantly to tax revenue.

Data from SARS indicate record export volumes of 20.5 million tonnes in 2024, earning the country R84.6 billion in export revenue.

Recently, South Africa’s government released a Cabinet Statement outlining three government interventions for the country’s chrome and ferrochrome industry.

These interventions are aimed at arresting the decline in South Africa’s smelting capacity to allow the country to produce and beneficiate more chrome and ferrochrome.

However, the Minerals Council said that while many of these initiatives are welcome, significant problems need to be addressed.

Counterproductive initiatives

In its statement, the government said the Cabinet had approved the finalisation of a government-industry agreement for electricity tariff realignment in support of the ferrochrome sector.

This agreement aims to restore South Africa’s industrialisation and beneficiation capacity in this sector.

In addition, the Cabinet approved an initiative to expand the Special Economic Zone (SEZ) smelters’ incentives framework/ regulations.

The council said these initiatives are welcome, but the details surrounding them remain lacking and will require extensive consultations to understand.

The Cabinet also approved the placement of chrome ore under export control, which will require exports to obtain the International Trade Administration Commission (ITAC) permit.

The Minerals Council, which represents 90% of South Africa’s minerals production by value, said that it welcomes the proposal to require all chrome exporters to obtain ITAC permits.

The council said this move could prevent illegal exporters of chrome, another big challenge the industry faces.

However, it strongly opposed any suggestion that this system be expanded or used to impose export quotas or restrictions on legally mined chrome.

The council said a particular concern was the Cabinet’s approval of an export tax on chrome concentrate.

The council’s research has shown that such taxes would not achieve the government’s goals of sustaining the ferrochrome industry and preserving jobs.

Instead, these taxes would negatively impact chrome producers and the significant contribution this industry makes to South Africa’s economy, as well as the jobs it sustains and grows.

The Minerals Council expressed its disappointment that the government did not consult it on these proposed interventions to ensure they align with what would best support the country’s ferrochrome and chrome industries.

“The Minerals Council will urgently engage with the ministries of Electricity and Energy, Mineral and Petroleum Resources, Trade, Industry and Competition, as well as National Treasury regarding the proposals in the Cabinet Statement,” it said.