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A Strategic Analysis of South Africa's Ferrochrome and Manganese Mining Industry
Frost & Sullivan, Aug 2009, Pages: 92
The growing global demand for steel in the past decade has resulted in a dramatic increase in the demand for ferrochrome and other chrome based products. Ferrochrome is a vital ingredient that protects steel from corrosion, improves tensile quality and its colour. South Africa is the world's largest ferrochrome producer that accounts for approximately 45% of global ferrochrome output.
Summary of the Major Findings
- The global outlook for both stainless steel and ferrochrome industry is expected to remain bullish with strong demand on one hand and constrained sources of supply on the other.
- Demand and supply imbalances will continue to exert considerable pressures on both steel and ferrochrome prices in the short to medium terms of the forecast period.
- China, which has become the key participant in the production of both global steel and ferrochrome will continue exerting considerable influence on the
industry’s supply and demand positions.
- Increased infrastructure spending together with rapid urbanisation and industrialisation in China and
India will push up the demand for both ferrochrome and steel for the foreseeable future.
- The consumption of steel in the other parts of the world such as the United States and the European Union markets has remained resilient although it has lagged behind China and India.
- The contribution of individual countries’ ferrochrome production output is likely to be constant as many of the chrome producing countries are experiencing chronic power shortages.
- South Africa, which is experiencing a significant deficit in base-load power supply together with the rest of the SADC region, has curtailed electricity consumption in the mining sector to 90 per cent of normal consumption capacity.
- The ferrochrome smelting process, which is energy-intensive has been adversely affected as production declined and expansion projects have been delayed in view of the available power supply.
- The capital intensive and specialised nature of the ferrochrome industry together with long lead period between developing and commissioning of new chrome mines and smelting facilities are likely to keep ferrochrome output stagnant in the short to medium terms of the forecast period.
Strategic Conclusions
- The global outlook for both steel and ferrochrome is expected to remain bullish in the medium term of the forecast period with rising demand on one hand and constrained supply sources on the other. Global ferrochrome demand and supply imbalances will be a significant pull factor into South Africa’s chrome and ferrochrome industries.
- China and India, which have been the major drivers of growth of the South African ferrochrome industry since 2000, will continue to be the key growth markets for the country’s chrome-based products once the effects of the global economic slow down start lifting.
- The increasing calls from the South African Government and major industry participants for beneficiation of primary chrome ore before exporting is likely to lead to the development of additional smelting capacity by small- and medium-sized companies in South Africa.
- South Africa’s ferrochrome output is likely to decline sharply in the short to medium terms of the forecast period due to electricity supply problems, effects of the global economic slow down, shortage of reductants, skills shortages, unavailability of credit and delays in implementing expansion projects.
- Xstrata Merafe and Samancor Chrome’s domination of South Africa’s and the global ferrochrome industry is likely to remain unchanged in the medium to long terms of the forecast period due to the capital intensive and specialised nature of the industry.
- Production potential of small- and medium-sized ferrochrome producers will remain constrained by the market power of the major industry participants, huge capital requirements and the long lead periods between building and commissioning of new chrome mines and smelting facilities.
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