HOW INCUMBENT SECTORS IN EMERGING MARKETS CAN REMAIN COMPETITIVE

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Consulting , Metals & Mining ,

CASE STUDIES

South African President, Jacob Zuma, has prioritized beneficiation as a means for creating employment and boosting economic growth.

There are significant challenges, however, to maintaining existing beneficiation capacity. A key example of this is the impending closure of South Africa’s ferroalloy smelting industry. Ferroalloy smelting is an important part of the economic capacity of South Africa. It consists of 13 companies, operating 22 smelting plants in a number of different locations. The industry employs approximately 9800 people (excluding contractors, suppliers, logistics and local businesses). The industry has a turnover of $US 5.5 billion, with a 95% export rate for output.

What is the problem?

The ferroalloy smelting industry has been adversely affected by current economic conditions, electricity reliability and increasing costs in power, labour and transport. The lack of industry competitiveness has forced certain South African companies to go abroad. Four local smelters are currently under business rescue (IFM, Tata KZN, Evraz Highveld Steel and ASA Metals) and with current market conditions, this number could increase. Local companies have made efforts to keep their doors open, with continued efforts to sustain productivity and efficiency, but this may not be enough. Without intervention, South African smelters will continue to be globally uncompetitive.

Bryanston was approached by a consortium of smelting companies, representing the interests of the ferroalloy producers of South Africa, to provide potential solutions to these challenges. Bryanston’s study resulted in various medium- and long-term solutions to address South Africa’s competitive challenges, all with the buy-in of stakeholders Eskom and the government.

Firstly, Bryanston analysed South Africa’s competitive smelting environment to that of its competitors. Reliable power supply turned out to be a key differentiator and a quick-win. Bringing together all key stakeholders, power load management synergies were identified and production planning (seasonal and daily) was optimized accordingly.

Secondly, on the longer term, Bryanston proposes investing in modern smelting technology for South Africa’s many smelters which are still using old and less competitive furnaces. Lower power requirements, higher smelting efficiency, increased production, lower maintenance, lower environmental impact and a safer and healthier working environment will be brought by the appropriate investment in new technologies. These strategic investments would benefit from government-supported funding schemes, making them accessible and economical.

Independent power generation is the third part of the solution. Off-grid power can lack in lower costs and avoid costly blackouts and loadshedding. Government and the national power regulator should support such independent power production including efficient co-generation technology. There is already some develoment in this space, however, progress is very slow and needs to be accelerated for the survival of the industry.

Bryanston is proud to work with induvidual smelting clients as well as the South African ferroalloy industry as a whole, to find effective business and national industrial policy solutions to maintain the competitiveness of this vital, value-creating South African industry.

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