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Business Last Updated: Oct 18, 2020 - 12:52:24 PM


Ferroalloy industry stares into the abyss
By BL PREMIUM, 11 OCTOBER 2020
Oct 13, 2020 - 12:14:57 PM

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SA’s ferroalloy industry, once the leading source of steelmaking ingredients, is on its knees and could be destroyed in the next four years due to state-imposed electricity tariffs.

SA was the leading source of ferrochrome a decade ago, but now it is in second place behind China, which relies heavily on chrome ore from SA. The same applies to ferromanganese, with China and other regions relying heavily on ore from SA rather than a steel mill-ready product.

SA was the leading source of ferrochrome a decade ago, but now it is in second place behind China, which relies heavily on chrome ore from SA. The same applies to ferromanganese, with China and other regions relying heavily on ore from SA rather than a steel mill-ready product.

SA’s Ferro Alloys Producers Association (Fapa), which has 10 members in both minerals as well as silicon, no longer knows who to turn to for intervention after years of unproductive talks with every possible ministry, says chair Nellis Bester.

In the past three years, 40% of ferroalloy capacity has been idled because it is no longer competitive, primarily due to a more than sixfold increase in electricity tariffs for heavy users such as smelters, mines and large industry. Electricity accounts for up to half of the cost of running a furnace.

 

In a single year to end-July, the industry lost 2,300 jobs.

“We are a dying industry,” Bester told Business Day.

Without affordable power and a long-term electricity price structure giving furnace operators a five to 10-year view of their tariffs and whether it is globally competitive, there will be no investment in SA’s ferroalloy industry, he said.

“Without bridging this gap with support of the government to pave the way for long-term pricing incentives or framework ... there will be no smelter remaining in SA in two to three years,” Bester said. “Once closed, there’s no possibility of a restart. It will simply be too expensive,” he said.

What was supposed to be a 5% increase in electricity tariffs in 2021 has ballooned to 15%.

“That will shut down another 10%-20% of capacity next year,” Bester warned.

Trial plant

At the Joburg Indaba mining conference last week, Andre Joubert, CEO of the ferrous division of African Rainbow Minerals (ARM) said just three of its 10 ferromanganese smelters remain in operation.

ARM is about to build a trial plant that would use half the electricity needed in conventional furnaces to make ferromanganese.

Even with ARM selling manganese ore at the cheapest possible price to its ferromanganese furnaces, these were barely competitive in the global market. Eskom’s 15% tariff increase next year will render them economically unviable.

Fapa, the Minerals Council SA, which represents the majority of SA’s mining companies, and the Energy Intensive Users Group have all spoken to Eskom about their difficulties with the monopoly’s tariffs and the damage done to their businesses and jobs lost.

“In terms of electricity pricing, SA’s commercial and industrial electricity tariffs are competitive by international standards,” Eskom CEO André de Ruyter said at the Joburg Indaba.

Even with the tariff increases imposed in the past decade, Eskom’s revenue fails to cover its operating, maintenance, staffing and interest costs. “This situation does not augur well for the sustainability of Eskom,” De Ruyter said.

Eskom has debt of R488bn and is hunting for ways to remove nearly R300bn of that from its balance sheet, he said.

With no intervention from any government department that it can intervene despite years of warnings and pleading, Fapa members have no option but to close furnaces, Bester said.

“If we can get assistance from the government to reduce power costs by 20% we can get back into operation and restart our idled capacity,” he said.


Source:Ocnus.net 2020

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