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19 September 2012 | Adam Leach
International Ferro Metals has experienced a challenging year as Chinese companies have begun to challenge its production of ferrochrome.
In the company’s annual report published this week, the business said “headwinds continued to blow” against ferrochrome producers in South Africa, citing factors such as high electricity prices and increasing competition from China.
Historically, South Africa has been the leading producer of the material, which is used to produce stainless steel. But it has been overtaken by China, which was only able to ramp up production after importing chrome ore from South Africa to fuel its smelters.
In his statement to accompany the results, Tony Grey, chairman of IFM, drew attention to the irony of the situation. “South Africa’s ferrochrome industry now suffers competitive pressures on an international scale. Its once vaunted place as the world’s leading ferrochrome producer has been ceded to China. Ironically, this has been rendered possible by South Africa supplying chrome, feed stock that China lacks in sufficient quantity to supply its smelters,” he said.
The effect of Chinese competition has been to reduce the ability of IFM and the rest of the South African industry’s ability to control market prices. In previous years, shutting down furnaces would tighten the gap between demand and supply and produce an price increase. But the impact of this is now lessened as China can - to a limited extent - make up some of the shortfall.
IFM said these adverse circumstances are not necessarily permanent. It said the company, and the sector in general, is moving to cut costs that would make the sector more competitive and electricity prices are showing signs of stabilising.
It also explained the South African government is considering imposing an export tariff so those countries that cannot produce their own ore will have to pay a premium, which would apply to China.