Last-Minute Deal to Save South African Smelters

Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)

Summary 

A last-minute deal has thrown a lifeline to some of South Africa's leading aluminum smelters that were about to be shut down with the loss of thousands of jobs. Beleaguered state-owned utility Eskom (Johannesburg, South Africa) has agreed to enter new talks with both Samancor Ltd. (Sandton, South Africa) and the Glencore-Merafe Chrome (Johannesburg, South Africa) joint venture.

Stay of Execution

South Africa's struggling power utility Eskom (Johannesburg, South Africa) has agreed to talks with the owners of some of the country's leading aluminum smelters to prevent their imminent closure with the loss of almost 5,000 jobs. 

Eskom has signed separate memorandum of understandings (MoUs) with the Glencore-Merafe Chrome (Johannesburg, South Africa) joint venture and Samancor Ltd. (Sandton, South Africa) in an effort to prevent the imminent closure of some of the country's leading aluminum smelters due to rocketing energy prices. They now have three months to work out a new power deal. According to vendors and government sources, electricity prices have risen more than 900% since 2007. In recent years, Glencore-Merafe Chrome has shut down 10 of its 22 smelters, while at Samancor only three of its 24 blast furnaces are currently in production. Industrial Info is tracking 53 operational smelters in South Africa. Subscribers to Industrial Info's Global Market Intelligence (GMI) Metals & Minerals Plant Database can find the plant profiles here.

In a statement, Eskom said: "The MoU formalises a joint commitment to develop a sustainable, long-term intervention for the ferrochrome sector, which has been severely affected by global market pressures and rising production costs. It establishes a joint multi-stakeholder task team comprising Eskom, the two producers, and government representatives. The team will prioritise developing an intervention that supports industrial competitiveness while ensuring that electricity-pricing solutions do not impose additional burdens on other customers. The parties have agreed to present a proposed solution within three months."

Closures of Smelters

In recent months, Glencore plc (Baar, Switzerland) confirmed that it was to start retrenchment proceedings at the Boshoek and Wonderkop smelters in the Rustenberg region, which would have affected just under 2,500 workers and another 17,000 in the supply chain. The operations have a ferrochrome capacity of 2.3 million tons - equal to a third of South Africa's annual ferrochrome exports. Production at both smelters was suspended in May and the company also implemented a temporary suspension of the Lion smelter. High energy prices were cited as the main cause.

Glencore said that a pricing package offered by Eskom at the end of November would only allow for the continuation of the Lion smelter but would not be viable for the Boshoek and Wonderkop smelters in Rustenburg. At the same time, Samancor told the leading Solidarity union that it was going to begin a retrenchment process early next year that would impact up to 2,500 jobs, stating that current electricity prices made it "impossible for the ferrochrome industry to survive in South Africa". 

Reaction to More Closures

Willie Venter, deputy general secretary for the metal and engineering industry at Solidarity union, described the looming closures: "We hope that the government's eyes are now open to the crisis that is at hand. This is a crisis and it cannot be denied any longer. The notices at Samancor and now Glencore show how urgent intervention is needed to save thousands of South Africans from unemployment. In recent discussions with the government at Nedlac, Solidarity and employers have clearly outlined the situation. Yet, pleas for lower electricity prices to continue production at the smelters have not been heeded."

Trouble Ahead

In addition to very expensive energy, a poor transport network for the mining and smelting sectors and cheaper products from abroad, the ferrochrome industry is now trying to head off possible government plans to impose an import tax or other market restrictions to help the sector. The country's Ferro Alloy Producers Association (FAPA) and the Minerals Council have jointly voiced their objections, calling for "globally competitive electricity prices as the primary intervention required to restart idled smelters." In a statement, they wrote: "Both groups are clear that the price and availability of chrome ore is not the cause of South Africa's ferrochrome smelter closures or suspensions. Instead, the more than 900% increase in electricity tariffs since 2008 has rendered domestic smelters uncompetitive and unprofitable. Without an intervention that directly addresses the electricity cost burden, no trade measures, including a chrome ore export tax or quotas, will restore meaningful viability to the country's ferroalloy smelters."

Key Takeaways

• A last-minute deal between South Africa's power utility Eskom and some of the leading aluminum companies have temporarily halted plans to shut key smelters.
• Up to 5,000 jobs at a number of smelters hang in the balance.
• Out-of-control power prices have been blamed for the large number of closures of smelters and blast furnaces in the country's aluminum and steel sectors.

About Industrial Info Resources

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).