SA fuel imports to drop, metal refineries open during lockdown
Energy minister Gwede Mantashe says coal mines supplying Eskom will remain open, as will smelters and refineries, which means a flow of PGMs
SA will curtail petroleum imports; keep limited coal production intact to supply Eskom and export markets; and keep smelters and refineries open as the country’s minerals sector enters a 21-day lockdown, says mineral resources and energy minister Gwede Mantashe.
Fuel production, supply and sales remains an essential service during the lockdown, which starts on Friday morning, but SA will import less as the economy slows down during the government-imposed shutdown needed to curtail the spread of Covid-19.
“In the case of petroleum products, imports will be scaled back for the duration of the lockdown, as there will be excess capacity,” Mantashe said on Wednesday.
SA’s mines, which are the leading suppliers of platinum group metals (PGMs), chrome and manganese, as well as an important source of iron ore, coal and gold, will be reduced as mines are shut during the period.
“The processing of surface material in the PGMs sector will continue for the production of, among others, medical products,” Mantashe said. “This will allow smelters, which cannot be switched on and off abruptly, to remain operational.”
SA provides 4.4-million ounces of platinum out of global supplies of 6-million ounces a year, and 2.65-million ounces of palladium out of 6.9-million ounces.
For the world’s largest sources of these metals — which are mainly used to make anti-pollution devices in petrol and diesel engines, jewellery and industrial applications — this has mixed blessings.
It brings supply into line with reduced demand as vehicle makers around the world stop production of cars and trucks, but keeps a trickle of metal to supply those who are either strategically restocking key metals, such as palladium and rhodium, which are in deficit; or, in cases such as China, have restarted vehicle production.
Counting the cost
One estimate is that the lockdown will cost SA’s PGM producers about R22.5bn in lost revenue arising from the three-week shutdown and the four-week restart, during which time production runs at about 50% of normal, taking about 900,000oz of the metals out of the market.
The Minerals Council SA advised its members, which represent 90% of SA’s mineral production, to contact the department’s director-general and deputy director-general to advise them of the key reason for keeping operations going; for example, key export markets, keeping smelters and refineries safe, and specialised markets.
Mantashe said coal exports would be adjudged on a case-by-case basis, while minerals, such as those used in medicines, would be exempt.
A key point of information will be the reduction of staffing numbers and how they will be kept safe from and informed about the coronavirus.
The big question is whether the 450,000 people employed in mining will be sent home, creating a surge of people into provinces such as the Eastern Cape, KwaZulu-Natal, with rural areas coming under pressure from workers moving from areas of high infection rates, such as Gauteng, to vulnerable parts of SA.
Mantashe was clear that miners have to stay around their places of work, ready to restart when the lockdown ends and to have access to mines’ medical facilities.
Big, listed base metal and ferrous metals miners such as cash-flush Kumba Iron Ore, Exxaro and African Rainbow Minerals (ARM) will experience limited consequences from the 21-day, or longer, lockdown, said RMB Morgan Stanley analysts.
“A 21-day shut-down should have very limited impact on these names. A longer shut-down of, say, six months, could see ARM using 73% of available cash and Kumba using 36%. We think Exxaro would be unaffected, apart from project delays and overruns,” they said in a note.
“Local suppliers of goods and services will struggle to last a 21-day shut-down, in our view. In the event of failures within the mining sector supply chain, we’re concerned about a delayed ramp-up once the shutdown is lifted and elevated cost inflation as the supply chain will need to be rebuilt.”