A 62 c/kWh electricity discount for chrome smelting companies is testing whether South Africa can keep electricity-intensive factories running at competitive costs without making power more expensive for homes and small businesses or weakening Eskom’s finances, says David Precious, Senior Market Analyst at EBC Financial Group. The issue has become wider than ferrochrome with government now considering similar concessions for other energy-intensive industries.
South Africa holds more than 72% of the world’s chrome reserves but whether it can profit from turning that chrome into finished metal now depends on electricity costs – not how much chrome is in the ground.
The recent electricity discount for ferrochrome producers raises a question that goes beyond the smelting industry: Can South Africa keep electricity-intensive factories operating at competitive costs after a year without load shedding?
The deal gives Samancor Chrome and the Glencore-Merafe Chrome venture a discounted electricity rate of 62 c/kWh. Eskom says the rate was agreed in April and later approved by the National Energy Regulator of South Africa. The arrangement will help Eskom remain financially stable without raising electricity prices for other customers, increasing borrowing or requiring further government support, the utility adds.
South Africa has stabilised its power supply but stable supply is no longer the finish line. For industries that use large amounts of electricity, the next test is price. Ferrochrome is the clearest example because it shows whether South Africa profits from its own minerals or lets other countries do the manufacturing and take the money.
Glencore’s South African ferrochrome unit cancelled planned job cuts affecting up to 1 500 workers after the electricity cost relief. Government has also reported that only 11 of South Africa’s 66 smelters remain operational. For chrome-linked towns in provinces such as North West and Limpopo, the risk extends beyond direct smelter jobs to contractors, transport providers, maintenance firms and household spending.
Ferrochrome is produced by smelting chrome ore and is mainly used in stainless steel and speciality steels. Electricity makes up roughly 52% of the cost of producing ferrochrome, according to figures presented at a public regulatory hearing. This is why the price Eskom charges can decide whether running a smelter makes financial sense at all.
If electricity is too expensive, South Africa can still mine chrome ore but the more valuable factory work moves offshore. The result is fewer industrial jobs, weaker local manufacturing and less export value from the same mineral base.
This is the chrome paradox: South Africa has the ore but high electricity costs can stop the country from turning that ore into ferrochrome, the more valuable finished product, at home.
Large smelters are receiving cheaper electricity at a time when households and smaller businesses remain sensitive to power prices. Critics can reasonably ask who else qualifies, how the process is overseen and whether other struggling industries would now line up for the same deal.
Eskom and ferrochrome producers have argued that the discount is designed to keep smelters as paying customers, keeping electricity flowing and revenue coming in, rather than a straightforward handout. At the public regulatory hearing, Eskom warned that losing 12,8 TWh of annual electricity demand from smelters could cost it revenue, leave power stations underused and ultimately push electricity prices higher for households and other businesses.
If the pricing framework is miscalculated, Eskom, households or smaller businesses could end up paying more. The question South Africa now faces is whether the country can price electricity in a way that keeps factories open, protects jobs and ensures the profitable work happens at home without making power more expensive for everyone else.
South Africa has the ore, the smelting capacity and now a year of stable power. What happens next with electricity pricing will show whether that adds up to an industrial recovery or just a better-lit version of the same problem.
