Ferrochrome production in meltdown

HARARE - Zimbabwe's ferrochrome production is facing an unprecedented meltdown following the continued fall in ferrochrome prices and weak international demand for the commodity.

Economic experts are calling for urgent government intervention to save the sector following Zimbabwe Mining and Smelting Company’s (Zimasco) last week announcement that it is scaling down operations to 40 percent of operational capacity due to weak global demand for ferrochrome.

The fourth-largest ferrochrome producer in southern Africa, Zimasco last month stopped buying ore from the small-scale miners in the northern parts of the Great Dyke and also slashed wages for its own staff in Mutorashanga.

The Kwekwe-based company cited high electricity costs, high interest rates and unaffordable taxes for the major cut-back in operations.

Zimbabwe has three major ferrochrome producers namely Zimasco, ZimAlloys Chrome and Maranatha Ferrochrome with a combined capacity to process 1,5 million tonnes of chrome ore.

However, the country which has 12 percent of the world chromite reserves, has seen its ferrochrome output dip from five percent of global production in 2000 to 1,2 percent currently.

Economist Johannes Chiminya said lack of investment in building refinery capacity limits the ability of Zimbabwe’s ferrochrome producers to switch smoothly to local chrome beneficiation in the short-term.

“To maximise the resource endowment, government must foster a competitive environment for beneficiation and create sustainable long-term returns through top resource management and continued investment,” he said.

Chiminya however, cautioned that the announcement by Zimasco could be a ploy by the company to have its taxes cut by government.

“It is a game theoretic type of play by Zimasco because they know the government thinks they are a critical player in mining,” he said.

“So the government will end up giving them more incentives — unknowingly prejudicing the country of its taxes etc — as the government will only consider the job losses for the few and loss in income by the contract workers.”

Chiminya said the ferrochrome producer was already buying from the contractors at very low prices than the global market prices — thus adversely impacting on the welfare of the contactors.

The Sinosteel Corp-owned company said the ongoing global economic crisis and lower than expected levels of economic activity affecting the world’s key regions of Europe, USA, Japan and China have resulted in lower prices and reduced off-take for most commodities, inclusive of ferrochrome.

Weak global demand for ferrochrome has also witnessed international mining companies either shutting down or scaling down operations.

Turkish ferrochrome producer Eti Krom stopped production on its Swedish ferrochrome plant due to poor market demand.

The plant, which can produce a maximum of 240 000 tonnes of ferrochrome each year, had been producing at 50 percent of its capacity until May, when worsening market conditions prompted the shutdown.

Kipson Gundani, chief economist for the Zimbabwe National Chamber of Commerce said subdued global demand for ferrochrome are exogenous factors and little can be done to uplift the ferrochrome production in the country.

“Zimbabwe’s contribution to world ferrochrome production is quite small and cannot influence the terms of trade. Besides, the sectors contribution to the gross domestic product is very minimal; hence the impact will not be felt strongly in the economy,” he said.

Zimasco said it was putting in place a number of measures to realign its operations with the global market changes and to safeguard its viability.

“These initiatives are aimed at ensuring that the company effectively weathers the current challenges, and more importantly, restructures the business to a cost platform that will result in its products being competitive in the global marketplace on a sustainable basis,” said the group.

“All these actions, notwithstanding global market conditions, are aimed at returning the company to full capacity utilisation in the shortest possible time.”

Zimasco produces around 600 000 tonnes per year of chrome ore and 210 000 tonnes per year of processed chrome. It also owns Valley Mine and Mutorashanga underground mines and three other tributary operations along the Great Dyke, a 530 kilometre mineral strike.

Despite the challenges that the company is facing, Zimasco said it takes serious cognisance of its responsibilities to all its stakeholders.

“It is to that end that there has been, and continues to be, regular dialogue with all concerned parties on the developments within the company and the nature of measures being taken to address the present and future standing of the company.

“Zimasco is confident that the ongoing initiatives will yield the required positive results, drawing from its decades-long ability to adapt to the constant changes of the global market place.”

Ferrochrome is a raw material used in the production of stainless steel. - John Kachembere

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