SA’s chrome exports boom while its smelters cling to life

The country has finally offered cheaper electricity to its smelters, but is this enough to win back the business? SA’s ferrochrome smelters were granted a 62c/kWh tariff in May to rescue a sector in freefall. The latest export figures point to an industry fighting for its life. A recent presentation by Trade & Industrial Policy Strategies (Tips) shows that chrome ore exports reached 7.3 million tonnes in the second quarter of 2026, up 28% on a year earlier. Ferrochrome exports, however, moved in the opposite direction, falling 18% to 364 000 tonnes. The divergence raises an uncomfortable question for a government that has spent years promoting local mineral beneficiation: how much of the industrial activity supported by South African ore is now taking place elsewhere? The ferrochrome sector has become a symbol of SA’s deindustrialisation, raising a further question: how much export revenue could have been retained had the government intervened sooner? The chart below shows what has happened to ferrochrome exports since 2016 due largely to electricity tariffs that have climbed 176% over the last 10 years. Source: Tips, Quantec, Sars and Statistics SA Ferrochrome smelters operate under separately negotiated agreements, but their loss of competitiveness is brutally evident in the decline in exports – largely due to soaring Eskom tariffs. The new 62c/kWh tariff brings local smelters within reach of some of their Chinese competitors. Of the 66 ferrochrome furnaces in SA, only 11 were operating just a few months ago, though the lower tariff should see several more return to service in the coming months. The Glencore-Merafe Chrome Venture has announced plans to restart its Boshoek and Wonderkop smelters, with commodity market information provider Opis, part of Dow Jones, reporting that they are expected to resume operations by November. A government recovery plan had envisaged restoring all 22 of Samancor’s furnaces by September this year. Will lower electricity tariff halt the decline? The 62c/kWh tariff for ferrochrome smelters, approved by energy regulator Nersa in May, replaced the interim rate of 87.74c/kWh approved in January. Before that, smelters were paying 135.82c/kWh. The new rate represents a 54.4% reduction on the previous tariff, offering producers serious relief after years of rising electricity costs. The agreements run for five years for Samancor Chrome and three years for Glencore-Merafe, with provisions allowing Eskom to share in the upside when market conditions improve. The framework presented at public hearings also included an 80% ‘take-or-pay’ commitment, requiring producers to pay for at least 80% of their contracted electricity even if they use less. Eskom says the revenue shortfall resulting from the discounted tariff cannot be passed on to other electricity customers through future tariff increases, and that the arrangement requires no additional government funding. How mining is keeping SA afloat Manufacturing net profits fell 54.8% in the first quarter of 2026 compared with the final quarter of 2025, while mining net profits rose 35.1%, according to Tips. This is an extraordinary turnaround for a mining sector long considered to be in its twilight phase. Trade unions played a pivotal role in pushing back against the threatened demise of SA’s ferrochrome sector after Samancor Chrome and the Glencore-Merafe joint venture issued Section 189 notices threatening nearly 3 900 jobs. Those notices have since been withdrawn. Ferrochrome exports routed through Mozambique, which totalled 174 000 tonnes in the June 2025 quarter, fell to zero in the June 2026 quarter, contributing to the overall decline in exports. China was the largest export market in the June 2026 quarter, while Japan and South Korea recorded the biggest quarter-on-quarter increases in volumes. Costs remain a concern The fate of the ferrochrome sector is clearly visible in Merafe’s financial results for the six months to June. Ferrochrome revenue rose by just 3% from the previous period to R1.4 billion, while chrome ore sales surged by 78% to R1.78 billion, boosted by a 75% increase in sales volumes and an 11% rise in the chrome price. Merafe’s attributable ferrochrome production fell by 75%, from 112 000 tonnes to 28 000 tonnes. Unit production costs rose 61%, reflecting higher chrome ore prices and fixed costs. Lower electricity tariffs and a more reliable Eskom supply should support a recovery in production, but growing Chinese supply and the risk of oversupply could continue to squeeze margins. Profitability will depend on production volumes and ferrochrome prices. Lower electricity tariffs for some consumers and not others raise difficult questions about government intervention and when – and if – it is desirable. But to resolve that argument, we would have to delve into the sorry tale of Eskom’s truancy from corporate decency over the preceding decades. This article was republished from Moneyweb. Read the original here.