Merafe swings into a loss as Covid-19 weakens steel demand

Merafe Resources, the junior empowerment partner in a chrome joint venture with Glencore, has swung into a first-half loss exceeding its R879m market capitalisation after Covid-19 shuttered facilities and hit Chinese stainless steel production.

The group reported a R961m loss for the six months to end-June, from profit of R165m previously. The group wrote down its assets by R1.34bn in its first half, warning on Tuesday that operating conditions in SA look set to deteriorate.

Both production and prices for ferrochrome, which is used in steel production, fell as a result of Covid-19, the group said, even as electricity costs rose.

Chinese stainless steel production in the first quarter of 2020 plummeted to levels last seen in early 2016, before recovering a little in the second quarter.

In June, the group announced it was moving to cut jobs, a process that would affect all smelters and mines, saying this was partially the result of unsustainable electricity prices.

The National Energy Regulator of SA (Nersa) had approved an increase of 8.76% for Eskom customers, which became effective in April.

The July court ruling that Nersa unlawfully included a R69bn equity injection from the government in its calculation of Eskom’s allowable revenue for 2019-2022 will result in further increased costs for energy-intensive businesses, the group said.

“These cost pressures threaten the sustainability of our smelting business as well as employment in our sector,” Merafe said.

gernetzkyk@businesslive.co.za