SA Mining: Smelters, Rates & Government Support | News24 & Times of Eswatini

South African Smelters Face Closure Amidst Rising Costs and Power Struggles

South Africa’s ferrochrome smelting industry is facing a deepening crisis, with multiple operations at risk of closure due to escalating production costs and ongoing challenges securing affordable electricity. The situation is prompting calls for government intervention and a re-evaluation of energy pricing structures to prevent further economic fallout.

The pressure on smelters has been building for some time, with rising costs eroding profitability. According to reports, several operations are already considering or have implemented shutdowns. The volatile market for ferrochrome, a crucial component in stainless steel production, exacerbates the problem. Merafe Resources, in a joint venture with Glencore, is particularly vulnerable, but the issue extends across the sector.

A key factor driving the crisis is the cost of electricity. Glencore has stated explicitly that a reduced power tariff is essential to the reopening of its shuttered ferrochrome smelters in South Africa. The company temporarily suspended production operations at its Boshoek, Wonderkop and Lion smelters, citing economic pressures. This suspension highlights the severity of the situation and the direct link between energy costs and the viability of these operations.

The broader manufacturing sector is also under strain, facing challenges from labor disputes, wage increases, and inadequate infrastructure maintenance. Smelters and foundries, which produce metals for industries ranging from aerospace to construction, are particularly sensitive to electricity prices. The consistent supply of competitively priced electricity, or gas, is vital for their operation.

The situation isn’t limited to ferrochrome. BHP Billiton previously shut down its Bayside aluminium smelter in KwaZulu-Natal, even with a preferential electricity pricing agreement with Eskom, demonstrating the immense cost pressures facing the industry. Combined, BHP Billiton’s Bayside and Hillside aluminium smelters, along with the Mozal smelter in Mozambique, previously consumed approximately 9% of South Africa’s total electricity output.

Calls for government support are growing. Industry stakeholders argue that Eskom must address its electricity supply problems and that the government’s planned R4 trillion infrastructure plan needs to be expedited. Encouraging private sector investment in energy generation is also seen as a crucial step. Some argue that Sasol’s monopoly on gas pricing further complicates the competitive landscape.

The implications of widespread smelter closures extend beyond the immediate loss of jobs. These facilities play a critical role in the supply chain for numerous industries, and their absence could disrupt production and increase costs across the board. Smelters not only produce metals from ores but also process scrap metals, contributing to a circular economy and supporting recycling initiatives. The processes involved create a diverse range of products, including castings for aerospace, electrical engineering, transport, and packaging.

The situation in neighboring Eswatini is mirroring the challenges in South Africa. Reports indicate that ESERA, the energy regulator in Eswatini, must align its rates with South Africa’s cuts to prevent the collapse of mines in that country, highlighting the interconnectedness of the regional economy and the importance of competitive energy pricing.

While government investment in new energy capacity, such as the Medupi, Kusile, and Ingula projects, is underway, the pace of progress is seen as insufficient to address the immediate crisis. The future of South Africa’s smelting industry hangs in the balance, dependent on swift action to address the underlying issues of cost, energy supply, and infrastructure development.