Q&A: Risks and opportunities in ferroalloys industry
SA needs to address logistics and stabilise energy supply challenges for its ferroalloys industry to become more investable
25 September 2024 - 05:00
by Lindiwe Tsobo
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SA’s ferroalloy industry plays a pivotal role in the global market, driven by the country’s abundant mineral resources, particularly chrome and manganese.
The country is one of the leading chrome exporters, supplying a vast portion of its production to international markets.
Business Day spoke with Nils Backeberg, a metals market analyst and economic geologist at global independent market intelligence firm Project Blue, for a closer look at the industry.
Can you talk us through the industry and what the end products are used for?
When we talk about the industry, we are referring to ferroalloys, which are alloys of iron.
Ferroalloys are used to produce different types of steel, such as “high-strength, low-alloy” steel, which is often used for rebar (reinforcing bar) in construction, or stainless steel, which contains chromium and nickel and is used in applications such as cutlery and cookware.
The type and amount of alloys used determine the steel’s properties, such as strength, corrosion resistance, and appearance. For instance, stainless steel contains between 12% and 21% chromium, and the addition of nickel creates a shiny finish.
From a global perspective, what are the supply and demand dynamics of the industry, and where does SA fit into that?
China is the world’s largest producer and consumer of ferroalloys, accounting for over 50% of global production and demand. The country has invested heavily in its steel economy since the early 2000s, ramping up production significantly. However, China’s own manganese and chrome ore reserves have been declining in quality, leading to a greater reliance on imports.
China has become increasingly reliant on importing feedstock for its steel industry, with SA being one of the main sources of ferroalloys. Australia, Gabon, Ghana and Brazil also supply ferroalloys to China.
What makes SA’s ferroalloy production significant on a global scale?
SA’s rich mineral resources have made it a major player in this sector, due to its vast reserves of minerals including manganese and chrome.
These minerals are vital for producing stainless steel and other alloys used in the construction, automotive and manufacturing industries. The chrome ore extracted here is primarily processed into ferrochrome, which enhances stainless steel’s corrosion resistance and durability.
Can you elaborate on the current state of the chrome mining industry in SA?
Chrome mining has been a cornerstone of SA’s economy for decades, contributing significantly to employment and export revenue.
Major players such as Glencore, Samancor, and Tharisa dominate the market. However, the industry faces challenges such as high electricity prices, inconsistent supply chains and logistical issues at ports.
Tell us more about the challenges facing the local industry.
SA has lost its competitive advantage over the past 20 years, with high energy prices being a significant concern. The industry is energy-intensive.
Twenty years ago, electricity prices in SA were among the lowest globally, making it an ideal investment location for energy-intensive industries. Now, energy costs constitute about a third of production expenses.
While we acknowledge progress in electricity supply, Eskom has not resolved all of its issues, including an unstable grid.
Some SA producers have adapted by opening facilities elsewhere. For example, African Rainbow Minerals operates manganese alloy facilities in Malaysia, where electricity is cheaper and they are closer to the Chinese market.
Additionally, shipping costs are also rising. Currently, markets for these products are primarily in China and Southeast Asia, with minimal growth in sales to Europe and the US. Transporting manganese from the Kalahari fields poses challenges since it is located far from the country’s ports. The infrastructure has not kept pace with demand, thus manganese is often transported via trucks instead of rail due to capacity issues with Transnet.
Speaking of logistics, how do port operations affect the chrome supply chain?
Port operations are crucial for the chrome industry. Richards Bay is SA’s largest bulk port and handles a significant volume of chrome exports. However, it has faced inefficiencies that have led to delays and increased costs. Recently, Maputo has emerged as an alternative export route due to its improved capacity and quicker access for eastern regions.
Over the past three years, chrome exports have ramped up, and now we are seeing figures between 1.2-million tonnes and 1.6-million tonnes. However, logistics have been problematic, with bottlenecks in imports. As such, Richards Bay has struggled to maintain pace, leading to Maputo becoming the largest exporting port in Southern Africa.
The inefficiencies at Transnet have resulted in lost revenue for the Port Authority since much of the chrome is now routed through Maputo.
What role can ferroalloys play in supporting SA’s transition to a low-carbon economy and meeting global decarbonisation goals?
Ferroalloys, being energy-intensive, will always require significant amounts of energy to produce. However, they can contribute to the transition by enabling the production of “high-strength low-alloy” steels and stainless steels, which can lead to reduced material usage and longer product lifetimes.
Chromium, a key component of ferroalloys, can be used in wind turbines and other applications where corrosion resistance is crucial.
While the production of ferroalloys is energy-intensive, the industry can explore ways to improve energy efficiency and reduce its carbon footprint.
For the industry players, many ferroalloy producers still rely on coal-based energy. If the government can stabilise energy supply through renewables, it could enhance production efficiency and reduce costs in the long run.
What are the opportunities for SA, and what are the key factors that will shape the future of the ferroalloy industry?
The steel industry in China is maturing. China’s growth plan includes increasing production of value-added products such as stainless steel, which will continue to drive demand for ferroalloys. SA as a key player in the chrome and manganese supply chain can take advantage of that. The country can leverage its raw materials, infrastructure and technological expertise to make it an attractive investment opportunity.
To address the logistics challenges, private investment in transportation infrastructure, such as the Maputo corridor, can help. Transnet has now opened up to private investments, which presents an opportunity for growth.
I see opportunities in SA’s geological endowment and technological expertise. However, the country needs to address infrastructure for logistics and stabilise the energy supply challenges to become more investable.
By focusing on these areas, SA can become competitive in the global market while also contributing to sustainable development.|
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Q&A: Risks and opportunities in ferroalloys industry
SA needs to address logistics and stabilise energy supply challenges for its ferroalloys industry to become more investable
SA’s ferroalloy industry plays a pivotal role in the global market, driven by the country’s abundant mineral resources, particularly chrome and manganese.
The country is one of the leading chrome exporters, supplying a vast portion of its production to international markets.
Business Day spoke with Nils Backeberg, a metals market analyst and economic geologist at global independent market intelligence firm Project Blue, for a closer look at the industry.
Can you talk us through the industry and what the end products are used for?
When we talk about the industry, we are referring to ferroalloys, which are alloys of iron.
Ferroalloys are used to produce different types of steel, such as “high-strength, low-alloy” steel, which is often used for rebar (reinforcing bar) in construction, or stainless steel, which contains chromium and nickel and is used in applications such as cutlery and cookware.
The type and amount of alloys used determine the steel’s properties, such as strength, corrosion resistance, and appearance. For instance, stainless steel contains between 12% and 21% chromium, and the addition of nickel creates a shiny finish.
From a global perspective, what are the supply and demand dynamics of the industry, and where does SA fit into that?
China is the world’s largest producer and consumer of ferroalloys, accounting for over 50% of global production and demand. The country has invested heavily in its steel economy since the early 2000s, ramping up production significantly. However, China’s own manganese and chrome ore reserves have been declining in quality, leading to a greater reliance on imports.
China has become increasingly reliant on importing feedstock for its steel industry, with SA being one of the main sources of ferroalloys. Australia, Gabon, Ghana and Brazil also supply ferroalloys to China.
What makes SA’s ferroalloy production significant on a global scale?
SA’s rich mineral resources have made it a major player in this sector, due to its vast reserves of minerals including manganese and chrome.
These minerals are vital for producing stainless steel and other alloys used in the construction, automotive and manufacturing industries. The chrome ore extracted here is primarily processed into ferrochrome, which enhances stainless steel’s corrosion resistance and durability.
Can you elaborate on the current state of the chrome mining industry in SA?
Chrome mining has been a cornerstone of SA’s economy for decades, contributing significantly to employment and export revenue.
Major players such as Glencore, Samancor, and Tharisa dominate the market. However, the industry faces challenges such as high electricity prices, inconsistent supply chains and logistical issues at ports.
Tell us more about the challenges facing the local industry.
SA has lost its competitive advantage over the past 20 years, with high energy prices being a significant concern. The industry is energy-intensive.
Twenty years ago, electricity prices in SA were among the lowest globally, making it an ideal investment location for energy-intensive industries. Now, energy costs constitute about a third of production expenses.
While we acknowledge progress in electricity supply, Eskom has not resolved all of its issues, including an unstable grid.
Some SA producers have adapted by opening facilities elsewhere. For example, African Rainbow Minerals operates manganese alloy facilities in Malaysia, where electricity is cheaper and they are closer to the Chinese market.
Additionally, shipping costs are also rising. Currently, markets for these products are primarily in China and Southeast Asia, with minimal growth in sales to Europe and the US. Transporting manganese from the Kalahari fields poses challenges since it is located far from the country’s ports. The infrastructure has not kept pace with demand, thus manganese is often transported via trucks instead of rail due to capacity issues with Transnet.
Speaking of logistics, how do port operations affect the chrome supply chain?
Port operations are crucial for the chrome industry. Richards Bay is SA’s largest bulk port and handles a significant volume of chrome exports. However, it has faced inefficiencies that have led to delays and increased costs. Recently, Maputo has emerged as an alternative export route due to its improved capacity and quicker access for eastern regions.
Over the past three years, chrome exports have ramped up, and now we are seeing figures between 1.2-million tonnes and 1.6-million tonnes. However, logistics have been problematic, with bottlenecks in imports. As such, Richards Bay has struggled to maintain pace, leading to Maputo becoming the largest exporting port in Southern Africa.
The inefficiencies at Transnet have resulted in lost revenue for the Port Authority since much of the chrome is now routed through Maputo.
What role can ferroalloys play in supporting SA’s transition to a low-carbon economy and meeting global decarbonisation goals?
Ferroalloys, being energy-intensive, will always require significant amounts of energy to produce. However, they can contribute to the transition by enabling the production of “high-strength low-alloy” steels and stainless steels, which can lead to reduced material usage and longer product lifetimes.
Chromium, a key component of ferroalloys, can be used in wind turbines and other applications where corrosion resistance is crucial.
While the production of ferroalloys is energy-intensive, the industry can explore ways to improve energy efficiency and reduce its carbon footprint.
For the industry players, many ferroalloy producers still rely on coal-based energy. If the government can stabilise energy supply through renewables, it could enhance production efficiency and reduce costs in the long run.
What are the opportunities for SA, and what are the key factors that will shape the future of the ferroalloy industry?
The steel industry in China is maturing. China’s growth plan includes increasing production of value-added products such as stainless steel, which will continue to drive demand for ferroalloys. SA as a key player in the chrome and manganese supply chain can take advantage of that. The country can leverage its raw materials, infrastructure and technological expertise to make it an attractive investment opportunity.
To address the logistics challenges, private investment in transportation infrastructure, such as the Maputo corridor, can help. Transnet has now opened up to private investments, which presents an opportunity for growth.
I see opportunities in SA’s geological endowment and technological expertise. However, the country needs to address infrastructure for logistics and stabilise the energy supply challenges to become more investable.
By focusing on these areas, SA can become competitive in the global market while also contributing to sustainable development.|
tsobol@businesslive.co.za
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