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Higher ferrochrome price fix lifts Merafe share price

19 Dec 2012
JOHANNESBURG ( – The share price of the South African black-owned ferrochrome producer Merafe Resources rose here on the announcement of a 2% higher ferrochrome price settlement.

The European benchmark ferrochrome price of $1.125/lb for the first quarter of 2013 is up on the $1.10/lb price for the fourth quarter of 2012.

The share price of Merafe – headed by CEO Zanele Matlala – rose 1.45% to R0.70 a share before noon on Wednesday.

The fourth quarter price of $1.10/lb fell from the third-quarter price of $1.25/lb and the second-quarter price of $1.35/lb – an increase of 17% on the first-quarter price of $1.15/lb price.

Through a pooling-and-sharing venture with ferrochrome giant Xstrata, Merafe participates in chrome mining and the beneficiation of chrome ore into ferrochrome through the operation of five ferrochrome smelters, 20 ferrochrome furnaces and nine mines.

Earlier this month the venture reported that it would be closing five of the 20 furnaces for the first three months of 2013 when State utility Eskom would buy back its electricity allocation.

The compensation provided by Eskom for the electricity not consumed is sufficient to cover the costs and lost profits on the associated volumes and the closure of the furnaces helps Eskom to catch up with its maintenance programme, which was hit by lower electricity supplies from Cahora Bassa, in Mozambique, between August and November.

Although Merafe will lose 100 000 t of ferrochrome production from January 1 to March 31, it has given the assurance that it will not shed any jobs.

Meanwhile, the South African government has still not responded to the ferrochrome industry’s request that it impose a $110/t export duty on raw chrome ore leaving the country and, in the longer term, establish a marketing arm similar to the one used in Canada to market potash.

Matlala, who took over the reins from Stuart Elliot in June, said earlier this year that she hoped a decision on the export duty would be forthcoming by February 2013.

She also expressed the belief that the formation of a chrome exchange similar to Canada's Canpotex for potash would help to stabilise the threatened South African ferrochrome industry.

Ruukki Group minerals CEO Danko Konchar said in September that profitability in South Africa’s ferrochrome industry was down to zero.

He told the Metals Bulletin Events’ fifth South African Ferro-Alloys conference that investment in the ferrochrome business had dried up and the share prices of listed ferrochrome companies were in the doldrums.

“A fundamental industry-wide restructuring must be undertaken,” he said, advocating a collaborative investment in independent industry-owned power generation.

On the environmental protection front, global carbon dioxide (CO2) emissions from production is said to have risen by a minimum of 15% a ton as a result of the displacement of capacity from the world’s most efficient South African smelters to the world’s least efficient energy-sapping and CO2-spewing Chinese smelters.

To maximise the resource endowment, the ferrochrome industry is advocating that South Africa fosters a competitive environment for beneficiation and creates sustainable long-term returns through top resource management and continued investment.

While the export of raw ore creates only 5.7 jobs per 1 000 t of ore, the export of ferrochrome creates 17.3 jobs per 1 000 t of ferrochrome – three times more.

There is a nigh six times value uplift with raw ore exports contributing R1 660/t to GDP and ferrochrome contributing R9 109/t to GDP.

South Africa would not be alone in implementing measures to maximise return from the resources it hosts in abundance, given what Canada has done in potash, Brazil in iron-ore, China in metallurgical coke and India in chrome and iron-ore.

India was the former main supplier of raw chrome to China before the Indian government intervened in 2006 and imposd an export tax.

Now India is enjoying the value-add as its ferrochrome sales rise and its raw ore exports plunge. Oman and Turkey are reportedly thinking of doing the same.