COST OF POWER: Crucial Nersa decision looms for ferrochrome

South Africa's ferrochrome industry stands at a critical inflection point. On June 15, 2024, the National Energy Regulator of South Africa (Nersa) will announce an electricity tariff decision that could either stabilize the sector or accelerate its collapse. For Glencore and Samancor—two major players controlling the majority of South African ferrochrome production—this ruling is not a minor regulatory adjustment. It is an existential question about whether energy-intensive smelting can remain viable on the continent.

The ferrochrome sector employs approximately 12,000 workers directly and supports another 30,000+ in downstream supply chains. The industry contributes over R15 billion annually to South Africa's export revenue, making it a material component of the country's foreign exchange earnings. Yet the sector faces an unprecedented squeeze: Eskom's tariff increases have climbed 25–30% year-on-year since 2020, while global ferrochrome prices have remained depressed, leaving producers caught between rising input costs and stagnant revenues.

## Why Is Electricity Cost the Make-or-Break Factor?

Ferrochrome smelting is one of the most electricity-intensive industrial processes on Earth. A modern smelter consumes 15–20 megawatt-hours per ton of finished product—meaning energy represents 30–40% of total production costs. When Eskom's tariffs spike beyond a certain threshold, the calculus inverts: continuing operations destroys shareholder value faster than shutting down. Both Glencore and Samancor have signaled they will scale back or suspend operations if Nersa approves tariff increases above 15% in real terms.

The Nersa decision is technically focused on Eskom's cost-of-supply justification for the tariff hike, but its real impact flows downstream to large industrial users. The regulator must weigh Eskom's financial distress against industrial competitiveness. A tariff hike of 18–20% (Eskom's implicit ask) would likely trigger immediate capacity reductions; a capped increase of 8–12% might allow continued operation at current volumes.

## What Are the Broader Economic Implications?

A ferrochrome sector contraction would ripple through South Africa's economy in multiple ways. Direct job losses in smelter towns like Polokwane and Lydenburg would be immediate and severe. Secondary effects would hit logistics, railroads (Transnet), and port capacity at Richards Bay—all already struggling with underutilized infrastructure. Internationally, any meaningful reduction in South African ferrochrome supply would tighten the global stainless steel supply chain, supporting prices for rival producers in India, Turkey, and Kazakhstan.

For investors, the Nersa ruling also signals the broader investment climate in South Africa. Industrial users have long cited energy unreliability and tariff unpredictability as barriers to new capital deployment. If Nersa protects incumbent smelters through a reasonable tariff cap, it suggests the regulator can balance stakeholder interests; if it prioritizes Eskom's balance sheet, it confirms that large-scale manufacturing in South Africa faces structural headwinds.

Glencore and Samancor have already submitted tariff briefs to Nersa. The regulator's June 15 decision will be the first concrete signal of whether South Africa can retain high-value industrial capacity, or whether energy costs are now forcing a sectoral retreat northward.

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