South Africa: Merafe Resources reported a 29% decrease in ferrochrome production in CY '20

One of the largest ferrochrome producers of South Africa - Merafe Resources produced lower volumes of ferrochrome in CY '20 amidst the pandemic. Capacity utilization dropped to 55% in the year, SteelMint learned from the financial reports

Key Highlights from the financial report:

Production loss of ferrochrome by 29%
Merafe's ferrochrome production fell by 29% to 265kt (2019: 371kt) in the CY '20. This is due to the national lockdown during the pandemic and weaker demand. Production was further impacted during the second and third quarters, as the company only operated the Lion smelter, Eastern Chrome Mines and the UG2 Chrome Recovery Plants due to subdued demand and winter shut-downs for maintenance.

Ferrochrome production cost increased by 8%
Total production costs per ton increased by 8.4% as compared to the previous year mainly due to an increase in electricity prices, effective from 1 April 2020. In addition to this, inflation and increased ore prices also acted as a catalyst to the rising production cost of ferrochrome. Meanwhile, the cost increase was countered by lower oil and reductants prices.

Electricity tariff increased by 9%, expected to further increase by 16%
Electricity supply and pricing remain a key risk for the business and ferroalloy sectors. The electricity tariff increased by 8.8% since 1 April 2020. Meanwhile, the National Electricity Regulator of South Africa (NERSA) has agreed to increase the tariff by 15.6% in 2021, following Eskom's High Court victory. Thus, it is expected that the competitive edge of the South African ferrochrome ventures would further shrink due to higher electricity cost.

Adverse market conditions lead to the retrenchment of employees
Despite good investment for making the operations more competitive in the market, the company faced significant financial and operational pressure in the year. Thus, it led to 976 employees being retrenched at a cost of R474.2 million. Meanwhile, the process was triggered by deteriorating operating and market conditions across the South African ferrochrome industry, including unsustainable electricity tariffs and interruptions, cross-subsidies and real cost inflation.