South Africa's power crisis is expected to cut output in the world's top supplier of ferrochrome by 5-10 percent yearly, hurting world supply and ensuring that prices remain firm, officials said on Tuesday.
South Africa has the majority of global reserves for the ferro-alloys manganese and chrome ore, and analysts and markets have kept a close eye on power shortages that have left producers operating at only 90 percent capacity since January.
State-owned power utility Eskom is battling to meet demand in Africa's biggest economy.
Steve Phiri, chief executive officer at South Africa's Merafe Resources said output in the sector would be hit until 2012 when full power is restored once Eskom's planned new generation capacity comes on-stream.
"This will create opportunities for rival producers like Kazakhstan, India and China to step in and take advantage," he said. "South Africa is also losing credibility as a reliable supplier of ferrochrome and hurting investor confidence."
Phiri, who spoke on behalf of South African producers, including rivals Hernic Ferrochrome and Samancor, said: "Will market supply be met? The power crisis will put pressure on the supply of ferrochrome globally. People will celebrate having strong prices, but we know this is artificial."
Dankor Konchar, chairman of Samancor said the biggest threat to South Africa's status at the helm of the ferrochrome output would come from Kazakhstan, which can already produce at much cheaper cost than South Africa.
"If they take this chance and take over as a global leader and take up our customers, it will be very difficult four years down the road to try to win customers back," he said.
The power crunch, coupled with the growth in the Chinese stainless steel sector has sent ferro-chrome prices soaring.
Similarly strong demand from the end user sector and short supply has also contributed to record prices for manganese ore.
"We are in serious trouble, and we are going to be in this mess for a long time to come," Algie Kiewitz, Eskom's acting general manager for transmission and customer service.
"The country does not have enough sufficient generation capacity to meet demand at all times; this is the reality we have to face."
He told the ferrochrome sector that Eskom has taken into consideration about 99 percent of the industry's power needs under its plans for a 5-year, 350 billion rand ($44 billion) programme to add new power capacity.
He said Eskom has set aside some 1,000 megwatts for the ferrochrome and the manganese sectors' future growth plans, to come on stream by around 2012. At the moment, he urged the sector and other big power users to cut demand by 10 percent.
"The system is still extremely vulnerable," he said.
The country's gold and platinum mines were shut for five days in January as the power crisis worsened, curbing output and sending precious metal prices soaring.
Andre Wilkens, the chief executive of African Rainbow Minerals (ARM) said ferrochrome smelters at the diversified mining firm had been hit by the power crisis.
"We have seen a 10 percent reduction in output from our smelters, but our coal and platinum mines are shallow and we have coped better," Wilkens said.
Worried participants said the big question was whether South Africa is still offering competitive advantages in the sector.
Kiewitz said that despite the crisis, and even with a power tariff increase of 27.5 percent by Eskom for the 2008/09, South Africa was still a competitive destination for investment.
Source: Reuters
No comments:
Post a Comment