JOHANNESBURG (miningweekly.com) – Stability can be brought to South Africa’s ferrochrome industry by creating a marketing organisation similar to the Canpotex potash marketing arm in Canada, the South African ferrochrome industry says in a brochure handed to the media.

The threatened industry says that Canada in 1972 faced a similar situation in potash to what South Africa is facing in chrome – a long-term potash price depression.

It was then that Canada formed Canpotex, which today describes itself as a marketing and logistics company that sells and delivers Saskatchewan potash to international markets as a wholly owned entity of potash producers.

“The Canadian potash industry provides an excellent case study,” says the South African ferrochrome industry in the nine-page handout to analysts, investors and journalists at the presentation of the results of the black-controlled Merafe Resources, which is part of a chrome-to-ferrochrome venture with the London-listed and South African-led Xstrata, the world’s biggest ferrochrome producer.

It says that forecast chrome supply growth, triggered by innovation and use of upper group two (UG2) by-products in ferrochrome, will outpace demand growth.

"Accordingly, optimising the benefit to South Africa from its chrome endowment could be accomplished through bringing stability to the ore export market through a marketing arm similar to Canpotex in Canada," the industry adds.

The South African ferrochrome business, which employs more than 200 000 people and which contributes R42-billion to gross domestic product, is rapidly losing market share to China and has been forced to shut 30% of its furnace capacity.

Once the proud holder of a 50% share of the global ferrochrome market, the local industry now finds that China is stealing the show – ironically, with the help of surplus South African raw ore.

China hosts no chromite deposits of its own, but imports the ore it needs from a string of countries.

India, which formerly supplied China with the lion’s share of the raw chrome ore it needed, has restricted ore exports so that it can convert the chrome into higher-value ferrochrome at home before exporting it.

South Africa, which has an oversupply because of the chrome stream coming out of the mining of UG2 reef by platinum miners, is now filling the gap India left.

This is taking the bread out of the mouths of South African ferrochrome producers, who are now hoping that the South African government will give them two forms of help – the first quick and temporary and the second long-term and permanent.

In the short term, ferrochrome producers are calling for the imposition of a $100/t duty on the export of raw chrome ore, but in the long term, they are proposing a Canpotex solution for ferrochrome.

The extraordinary growth in ore supply from UG2 tailings will result in a potential six-million-ton oversupply of metallurgical-grade ore by 2014.

That will lead to lower ore prices and, consequently, lower ferrochrome margins, with negative implications across the South African chrome value chain, which earns R36-billion a year in foreign exchange, invests capital of R3.5-billion a year and pays R2.5-billion a year in taxes.

Including UG2 sources, South Africa has 82% of the world’s chrome reserves. Exporting chrome ore in unbeneficiated form creates 5.7 jobs per 1 000 t of ore and exporting ferrochrome creates 17.3 jobs per 1 000 t of ferrochrome.

While R1 660 is added to the GDP every time a ton of ore is exported, R9 109 is added every time a ton of ferrochrome is exported.

South Africa also has technologically advanced smelting capacity, which is currently considerably underused.

The local ferrochrome industry is hoping that the South African government will opt to maximise South Africa’s chrome ore endowment to drive sustainable growth.