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Eskom’s power reduction hit-list gathers momentum

Johannesburg, South Africa — ESI-AFRICA.COM — 17 February 2012 – Eskom’s January warning that it may be compelled to impose a fresh round of load-shedding because of an unsustainable maintenance backlog is gathering momentum, with Merafe Resources being the latest ferrochrome producer asked by the national power utility to idle furnaces in the past week.

This is the message from Stuart Elliot “’ CEO of Merafe which “’ through its wholly owned subsidiary, Merafe Ferrochrome & Mining (Pty) Limited “’ is a partner with Xstrata South Africa (Pty) Limited in the Xstrata-Merafe Chrome Venture “’ the world’s largest ferrochrome producer.

Elliot declined to add to a JSE announcement in which the company styled discussions with Eskom as attempts to “assist Eskom with its immediate power requirements”. However, customers would be supplied from inventories, he said.

Xstrata has already agreed to shut two furnaces, and could shut two more, although it also hastened to add that supply to customers would not be interrupted.

However, Numis Securities, a UK stockbroker, believed that were four furnaces to be shut at Xstrata, some 430,000 tonnes of material would be removed from the market which would be supportive for the spot price.

Ruukki CEO, Alistair Ruiters, was unavailable at the time of writing, but it’s thought his company’s furnaces are also at risk of shutdowns. International Ferro Metals (IFM) has shut two of six furnaces at its Rustenberg operations.

Eskom said last week that its current planned outage exceeded capacity it had set aside for maintenance, a situation CEO Brian Dames said was “unsustainable”. It has said in the past that industry should cut power consumption 10%.

Discussions between Eskom and ferrochrome producers are around compensation for lost production with Eskom likely to agree to a combination of payment for power – usually at a rate just above the fixed cost of production – and the application of summer tariffs during the winter months.

Normally, ferrochrome producers put furnaces in a programme of maintenance over the high-cost winter period. As they now are likely to operate over winter, to maintain production levels, compensation will be required.

At the time of writing, Eskom had not responded to telephonic messages regarding the nature of its discussions with mining firms, or whether requests for shutdowns would be extended.