- Up to 68,000 jobs and more than R100 billion in annual exports at risk as smelters struggle with high power prices.
- Industry requires electricity at 62 c/kWh while average tariffs sit near R1.96/kWh.
- Study proposes renewable energy and storage transition around 2030, alongside full Eskom unbundling.
South Africa’s ferrochrome sector is facing a critical turning point as high electricity prices threaten the survival of one of the country’s most energy intensive export industries, while also exposing deep structural challenges within Eskom.
A new analysis titled To Save or Not to Save SA’s Ferrochrome Smelters and Eskom, authored by Johan van den Berg, Frank Spencer and Johan Roos, argues that decisions taken to support ferrochrome smelters could determine not only the future of the industry but also the financial viability of Eskom itself.
South Africa holds about 72% of the world’s chrome reserves but now produces only 19% of global ferrochrome output, down from more than 50% two decades ago. Only four of the country’s 48 smelters remain operational.
During the same period, China has become the dominant producer by importing South African chrome ore and processing it domestically. The shift has significant economic consequences. Between 30,000 and 68,000 direct and indirect jobs are linked to the ferrochrome industry, which generates more than R100 billion in annual export value.
Electricity costs lie at the centre of the crisis. Ferrochrome producers indicate that globally competitive production requires electricity prices of about 62 c/kWh. However, the average electricity tariff in South Africa is approximately R1.96/kWh.
The study notes that many competing jurisdictions effectively subsidise their ferrochrome industries through lower electricity prices. Without intervention, South Africa risks losing additional smelting capacity while continuing to export unprocessed chrome ore, forfeiting the four to five times value increase achieved through beneficiation.
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The ferrochrome dilemma is closely tied to Eskom’s financial health. Smelters represent a major industrial electricity customer base, and their closure or migration away from Eskom supply could accelerate what analysts describe as a utility “death spiral”.
If smelters shut down or shift to self-generation using solar PV and battery energy storage systems, Eskom could lose a substantial portion of high demand industrial consumption, further weakening its revenue base. The report warns that this scenario could push the already heavily indebted utility toward deeper financial distress.
At the same time, maintaining the status quo also carries costs. One scenario involves direct electricity subsidies to keep smelters operational. The report estimates that such support could cost between R18 billion and R27 billion per year, accumulating to R113 billion by 2030 and potentially R261 billion over a decade.
An alternative pathway focuses on dedicated solar PV and battery storage capacity for the ferrochrome industry. This option would require about R157 billion in total investment, of which roughly R77 billion could come from government with the remainder privately financed.
While renewable electricity for smelters is not yet at the required price level, the study suggests that rapidly declining costs could make the solution competitive by around 2030. This timeline coincides with the expected retirement of several Eskom coal power stations, including approximately 9 GW of capacity scheduled for closure that year.
The transition could also position South Africa to produce “green ferrochrome”, which may attract premium prices in certain international markets as global decarbonisation pressures increase.
However, the authors argue that any public financial support for the ferrochrome industry must be tied to structural reform of Eskom.
They contend that Eskom’s vertically integrated structure, combining generation, transmission and parts of distribution, has reinforced its status as “too big to fail”. A failure in any single segment could destabilise the entire electricity system.
The report proposes that support measures, whether through fiscal subsidies, tariff concessions or renewable investment, should be conditional on completing the unbundling of Eskom and establishing an independent transmission entity capable of raising capital on its own balance sheet.
Transparency in electricity pricing is also identified as critical. While Eskom’s short run marginal cost of coal generation may fall between 50 c/kWh and 62 c/kWh, the fully allocated cost of supply including infrastructure and maintenance is closer to R1.96/kWh. Subsidising power at marginal cost effectively shifts the burden onto other customers and taxpayers.
According to the authors, such decisions must be made transparently and subject to oversight by regulators, parliament and civil society.
The study ultimately recommends a temporary holding strategy lasting four to six years to maintain the ferrochrome sector while Eskom undergoes structural reform. From around 2028 onward, planning should accelerate for a large scale transition of smelter electricity supply to solar PV and battery storage, with full migration expected between 2030 and 2032.
The authors conclude that South Africa should not treat the ferrochrome crisis and Eskom’s restructuring as separate issues. Instead, they argue that both challenges must be addressed together to secure the country’s long term energy stability, industrial competitiveness and pathway toward a lower carbon electricity system.
Link to the full report here: To Save or Not to Save SA’s Ferrochrome Smelters and Eskom
Author: Bryan Groenendaal
