Merafe, a company listed on the Johannesburg Stock Exchange, has announced a strong profit of R720 million for the first half of 2024. This impressive figure comes as a result of higher chrome ore prices and a weaker South African rand against the US dollar. However, despite this success, the company is facing challenges as the global market outlook appears to be softening.
Merafe’s profits are largely driven by its partnership with Glencore in the Glencore-Merafe Chrome Venture. This venture is a big player in the global ferrochrome industry, with the capacity to produce 2.3 million tonnes of ferrochrome each year. Merafe earns 20.5% of the profits from this venture, which is focused on mining chrome ore, turning it into ferrochrome, and extracting other valuable minerals in the process.
In the first half of 2024, the company’s production of both ferrochrome and chrome ore was slightly down. However, some improvements in electricity supply and logistics have helped keep things running smoothly. Globally, the demand for ferrochrome has grown, thanks to a rise in stainless steel production, which went up by 9% to 31.3 million tons. The biggest boost came from China, where stainless steel production jumped by 12%.
China’s dominance in the global stainless steel market has continued, with the country producing more than 63% of the world’s stainless steel. This surge in production has also driven up the demand for ferrochrome, which grew by 10% to 7.9 million tons. China, in particular, has been ramping up its ferrochrome production, introducing new, cost-efficient methods that have led to a 29% increase in their output.
While China’s ferrochrome production is booming, South Africa’s has taken a hit. The country’s production dropped by 21% to 3.1 million tons, largely due to China’s increased capacity and efficiency. Despite this, South Africa remains a key supplier of chrome to China, with exports to the country growing by 27% to 8.5 million tons.
Merafe’s CEO, Zanele Matlala, highlighted these trends in the company’s half-year presentation. She noted that while the company has benefited from the weaker rand and higher chrome prices, there is growing pressure on chrome ore prices, which could lead to lower ferrochrome prices in the second half of the year. This, coupled with rising costs, is expected to put further pressure on the company’s profit margins.
Despite these challenges, Merafe remains in a solid financial position. As of June 30, the company had cash and cash equivalents of R1.7 billion, providing a strong cushion against potential market downturns. Additionally, the company’s board has declared an interim gross cash dividend of 20 cents per share, matching the dividend paid out during the same period last year.
Looking ahead, Merafe is cautious about the second half of 2024. The company expects a weaker market outlook, with softer ferrochrome prices and continued pressure on margins due to rising costs. However, with a strong financial base and a solid partnership with Glencore, Merafe is well-positioned to navigate these challenges.
While Merafe has delivered strong results for the first half of 2024, the road ahead may be rocky. The company’s ability to manage costs, maintain production levels, and navigate a shifting global market will be key to sustaining its success in the months to come. With strong leadership and a clear strategy, Merafe is ready to face whatever challenges the future may bring.
Source: Mining Weekly
