Zimbabwe chrome ore export ban boosts competitors amid South Africa’s tax uncertainty

Zimbabwe has banned exports of raw chrome ore with immediate effect and will ban exports of chrome concentrates from July 2022 in order to secure its ferro-chrome industry, the country’s cabinet announced on August 3, in a move which proponents of a South African chrome ore export tax believe has strengthened their case.

“A [total of] 22 smelters are now operating and are shared among nine foreign and local companies,” Zimbabwe’s minister of information Monica Mutsvangwa said in a post-cabinet press briefing on August 3. “Unless chrome mining capacity is expanded, the smelting operations could soon face the challenge of insufficient feedstock in the form of chrome ore.”

Miners such as Europe-based Tharisa have been attracted to Zimbabwe by its large chrome ore reserves and would not have been expecting a ban on foreign sales.

Zimbabwe has the world’s second-largest reserves of high-grade chromium ore after South Africa, with deposits of about 10 billion tonnes, equivalent to around 12% of the global total, according to the Zimbabwean Ministry of Mines & Mining Development.

After the announcement was made, ore investors were seeking clarification about the implications of the ban, such as what products were involved and how Special Economic Zones would be affected.

Ore competitors to benefit
Zimbabwe typically produces 800,000-1 million tonnes per year of chrome ore. About one-quarter of this is consumed by its domestic ferro-chrome industry, while the rest is exported, mainly to China, market participants told Fastmarkets.

In 2020, Zimbabwe shipped 568,356 tonnes of chrome ore and concentrate to China, accounting for 4% of China’s chrome ore imports of roughly 14 million tonnes, according to the east Asian country’s customs data.

The competitive price of Zimbabwe’s ore, compared with similar material from Turkey, Albania, Iran and Pakistan, has gained it an increasing amount of interest from Chinese buyers in recent years.

The other producers could now benefit from the removal of Zimbabwean chrome ore from the market, participants told Fastmarkets.

There was an immediate reaction in the price of Turkish lumpy material following the news from Zimbabwe.

Fastmarkets’ price assessment for chrome ore, Turkish lumpy, 40-42%, cfr main Chinese ports, was $270-280 per tonne on August 10, a rise of $10 per tonne (3.8%) from $260-270 per tonne on August 3, and a level last seen in May 2018.

“Turkish chrome ore prices had soared since the beginning of this year because of tight supply and high freight rates, and the news [of the export ban] gave prices a further push,” a ferro-chrome producer in China said.

The prices of concentrates will be affected when Zimbabwe halts exporting concentrate from next July.

Consequently, production costs for Chinese smelters will be pushed up, a second ferro-chrome producer in China said.

Apart from giving price support to substitute suppliers, Zimbabwe’s export ban will not cause any drastic disruptions to the supply chain as a whole, because Zimbabwe is only responsible for a tiny share of China’s total chrome ore usage, market participants said.

Foreign investment
Meanwhile, Zimbabwe’s ban on chrome ore exports could attract more foreign investment into the African country’s ferro-chrome sector, according to some market participants.

China’s Tsingshan Holding Group is developing a $1 million composite project for a carbon steel plant, an iron ore mine and a ferro-chrome plant in Zimbabwe. The ferro-chrome plant will produce 500,000 tpy of material, the company announced in late May.

The project will be operated by Zhejiang Dinson Holding Co Ltd, a unit of Tsingshan, according to the statement. Dinson already has ferro-chrome smelters in Zimbabwe with capacity for 150,000 tpy.

Another major producer in Zimbabwe is Zimasco, owned by Chinese state-owned trading firm Sinosteel, and this has capacity for 180,000 tpy of ferro-chrome.

“There might be some companies looking to invest in Zimbabwe, given its rich resources. But its ferro-chrome sector is in the development stage, and should pose no threat to major smelting countries such as China and South Africa in the foreseeable future,” a second ferro-chrome producer source said.

But there were doubts among some market participants whether the ban would result in enough growth in the alloy sector to offset the loss of income from ore exports.

“Zimbabwe has fantastic reserves, but there is more uncertainty about operating there than in South Africa,” one market participant said. “China has invested heavily in smelters in Zimbabwe, and this ban feels like the result of lobbying from there. But it did not work in the past, and I don’t think it will work in the long run, so I don’t think it will last.”

A ban on exports of chrome ore had been imposed by Zimbabwe’s government from 2011 until it was removed in 2015.

Implications for South Africa
The South African government announced in October 2020 that it would implement a tax on chrome ore exports to bolster its ferro-chrome industry.

But this proposal has not been followed up, amid debate in South Africa about whether it would be of net benefit to the economy.

Zimbabwe’s chrome ore industry emerged as the most likely beneficiary of South Africa’s proposed chrome ore export tax in a poll of market participants by Fastmarkets in January 2020.

Proponents of the export tax in South Africa have seized on the ban in Zimbabwe as a further reason to implement a tax, as well as to encourage the domestic beneficiation of the country’s ore and to support the country’s ferro-chrome production industry.

“South African producers [which are] against the tax don’t have a leg to stand on any more,” a second market participant said. “They had always said that if an export tax was imposed in South Africa, then Zimbabwe would increase its exports, but that is no longer the case. It is time for South Africa to act and to stop exporting its wealth.”

Several ore producers, which have come together under the Chrome SA group banner, remain steadfastly opposed to a tax and doubt whether Zimbabwe’s ban will push the South African government into action.

“I doubt whether the ban in Zimbabwe will have any effect at all on an export tax in South Africa,” a trader said. “In my opinion, the net effect of a chrome ore tax would be negative for the country’s economy, and the Treasury knows this, so they will push back on it.”

The chrome ore market has been waiting for a statement on the proposed South African tax since last October, and it may wait to see the repercussions of the Zimbabwean ban before taking any further steps, according to market participants.

“I expect the [South African] government will wait to see what happens,” the first market participant said. “Miners are contributing a lot to the Treasury, so I am not worried at all in the short term.”