THE past few weeks have been filled with worrying news of the potential job losses that could result from severe challenges facing SA's platinum group metals sector. An over supplied market, anaemic prices and high input costs are just some of the core reasons behind the sector's problems. Sadly, the sector is merely the latest to experience serious challenges in the bigger story of the South African mining industry facing a crisis.
In line with depleting reserves, the economic contribution of the gold sector has been declining for years and the crisis in the ferrochrome sector has reached a frightening precipice. SA is the leading producer of all three commodities.
While the platinum sector is only announcing the suspension of operations now, the ferrochrome sector has over the years adapted itself to accommodate difficult economic conditions.
The platinum and ferrochrome "camps" are now locked in a public row over the sale of unbeneficiated chrome ore to China. The platinum sector argues the importance of chrome ore by-product sales to its ailing business, while the ferrochrome sector points to this as the cause of its demise.
In addition to being the world's leading producer, SA has more than 80% of the geological endowment of both platinum and chrome. Both sectors are home-grown industries with significant value chains.
In the case of platinum, the difficulty lies in adapting its high fixed-cost supply base to match an ailing European market.
In the case of ferrochrome, the difficulty lies in the rampant growth of cheap unbeneficiated chrome ore exports to China.
The global chrome ore market is in oversupply, a situation set to degenerate further, given plans by some platinum producers to increase exports of chrome ore by-products by up to 81% in the coming year. With China currently holding about 3-million tons of chromite ore stockpiles, chrome ore prices are expected to plummet further. What is to be done?
An intervention that looks at some of South African mining's fundamental problems and immediately correcting them is now necessary. At the heart of the crisis is SA's inability to set prices for commodities of which it has the lion's share of global reserves. Platinum and chrome are in this category.
However, transitioning to setting the price requires greater co-operation and a shared vision between miners and the government, as legislative or institutional arrangements are necessary to do so.
The idea of a commodity exchange has been put forward recently by Dr Iraj Abedian, economic adviser to Mineral Resources Minister Susan Shabangu. While suggestions should be encouraged, an exchange does not in itself resolve an immediate oversupply problem or poor management of supply and demand economics by sector players.
An exchange could rather amplify the situation with an even greater amount of chrome ore being made available for dispatch, unbeneficiated, out of the country.
It also does not automatically play into the longer-term industrialisation objectives of producing countries such as SA. It can only work if the principles and rules upon which it is founded are designed to encourage local beneficiation and to position SA as a price-setter rather than a price-taker.
Ferrochrome producers have united and asked for an export tax as an immediate intervention to encourage domestic beneficiation of ore. Some have criticised the ferrochrome producers' proposal, saying the Chinese would simply buy it elsewhere. This view is misleading. Apart from there not being a single chrome project anywhere else in the world that can replace the millions of tons SA currently ships to China, most of the few other chrome-producing countries already tax the export of unbeneficiated ore. Zimbabwe has stopped exporting it altogether; India charges $90 a ton, while Kazakhstan also imposes a tax on the export of chrome ore. SA is the only jurisdiction with an "anything goes" attitude and the results of this are beginning to show.
Current ferrochrome smelting capacity utilisation is less than 65% and falling fast. It is only a matter of time before retrenchments become the only option. Market position lost will be difficult to reclaim, making the prospect of the de-industrialisation of the ferrochrome sector very real.
This will have grave social consequences, and worsen the disaffection already caused by high unemployment and poverty.
Some fear that China will retaliate if SA insists on supporting its own beneficiation first. This fear is unfounded. The two countries have a bilateral agreement that specifically commits China to beneficiating minerals it imports from SA within the borders of our country. What we have is partly a result of this bilateral agreement not being implemented. Simply following up on it administratively should not cause problems between the two countries. In any case, China levies heavy taxes on the export of ferrochrome from its shores because it wants to support its own stainless steel industry.
The export levy is proposed as an interim measure to allow the formulation of a longer-term solution by the government, integrated ferrochrome producers, chrome miners, platinum producers and other affected parties. The ferrochrome producers have suggested that a longer-term solution be devised around encouraging the local consumption of UG2 chrome ore by-products from the platinum sector, and the responsible management of ore supplied to China.
There is absolutely no sense in allowing the platinum and chrome sectors to engage in a struggle that will end in a "no-win" situation for both. Using by-product chrome ore sales to shore up an inherently weak industry position does nothing to resolve the fundamental problems of the platinum sector. Continued chrome ore oversupply will simply delay the inevitable.
All stakeholders have a responsibility to find solutions that will support the sustainability of both the ferrochrome and platinum sectors. Organised labour in the form of the National Union of Mineworkers has already bemoaned the effects of unregulated chromite ore exports - asking the government to intervene.
Many years have now elapsed since this discussion began but a conclusion remains elusive, even though there is great sympathy within the government.
While a task team has been formed by Shabangu to deal with the platinum sector's challenges in recent weeks, the ferrochrome producers' calls for government intervention in the past five years have failed to yield a similar response.
The imminent destruction of the ferrochrome sector should be treated as a national emergency given its significant economic contribution. We cannot afford to lose one of the more than 200000 direct and indirect jobs in the sector.
We also should not allow any further decline in the R42bn contribution the sector makes to SA's gross domestic product.
Must we wait for another catastrophe before acting in an already dire situation?
. Leeka is the CEO of Hernic Ferrochrome.