New South African Chrome Tax: What does this mean for YOU?
On Thursday the 22nd of October, the South African Government proposed an export tax on chrome ore designed to support domestic ferrochrome production and the local chrome value chain.
While most people never see or interact with chrome in their daily lives (apart from the shiny bits on their cars, bikes, or kitchen appliances), it is significantly important for stainless steel markets – and South Africa has the world’s majority of this commodity.
The proposed export tax will drive up costs for chrome ore producers to export globally, incentivising companies to rather transform the raw materials into ferrochrome within the country instead.
However, this can be seen as a double-edged sword, as smelting furnaces are highly power-intensive – making the 523% increase in electricity usage over the past decade back-breaking to the sector. This may in turn diminish South Africa’s overall global competitiveness.
The ferrochrome industry has been doing everything possible to cut its electricity consumption through the use of alternative electricity sources and installing energy-efficient smelters that use 37% less electricity than a conventional smelter, to produce the equivalent volume of ferrochrome. But beyond what it has been doing, there’s not much more it can do to cut costs for local production.
- Since South Africa boasts having two-thirds of the world’s ferrochrome production and four-fifths of the seaborne markets, the government can adopt a hardball approach to process chrome locally, a move ultimately affecting the traditional global chrome leaders. For example, China, who traditionally satisfies 85% of South Africa’s chrome supply.
- Implementing the export tax as proposed would return the ferrochrome industry to a competitive footing, enabling the local industry to regain its competitiveness within the entire global chrome value chain.
- International chrome ore producers have excess capacity which can replace South African chrome ore in satisfactory volumes that could strain the South African chrome industry. Such as China, who has extreme buying power and could resist the attempts to pass the tax.
- The export tax may result in an increase in revenue for local mining companies, however, the cost to produce ultimately increases. This may seem beneficial in the short term, however, should local products be dubbed inferior to global standards, the opportunity for international ferrochrome producers to gain more market share will increase.
There has still been no clarity regarding the level at which this tax would be imposed or even when, and the possibility that insufficient thought was spent on the consequences of this tax looms as a question left answered.
For more thought-provoking articles on the global and local chrome industry, view our Industry News section. You can also learn more about SwapX, the global chrome trading platform, or register today as a buyer or seller of chrome ore products.