The government of South Africa hopes its miners will ramp up production and bolster the flagging South African economy following the lowering of the nationwide alert on Monday June 1, easing restrictions to combat the Covid-19 virus.
“Under alert level 3, all deep mining operations are expected to ramp up to full capacity. This brings the mining industry to full capacity of production,” Gwede Mantashe, South Africa’s mineral resources and energy minister, said in a statement on May 29.
A sharp increase in production would relieve tightened supply in markets highly exposed to South Africa since the country’s lockdown was first imposed on March 26
Fastmarkets’ manganese ore index 37% Mn, cif Tianjin
was $5.93 per dry metric tonne unit on May 29, which was 47.9% higher than when the lockdown was imposed.
And Fastmarkets’ chromite 46% Cr203 min, wet bulk, South Africa
assessment has risen by 10.3% since the lockdown to $205-225 per tonne as of June 2.
But some producers will be cautious about increasing production. A bid to quickly increase production raises the risk of an outbreak of Covid-19 and the need to halt operations again.
"We are being extremely cautious in ramping up our production to 50% of capacity, to maintain the health of our people," a chromite producer said.
"While the new rules mean that production levels can go up in theory, in reality most producers are still too concerned about the risk to do so," a second chromite producer said. “We expect there will still be significant interruptions in production until August - so it may not be until the fourth quarter that production is back to normal.”
“There is an opportunity cost to not producing that you cannot realize the benefit of higher prices but there also the risk of ramping up production and the prices falling again,” he added.
The chromite market has been slow to increase production since the lockdown. The market had been oversupplied and producers are wary of a return to this.
As a result, some mines may not reopen at all, such as Kroondal
, despite having the option to do so and increased prices.
There is also the possibility the South African government will re-impose stricter lockdown restrictions if cases of Covid-19 increase.
“There is the strong possibility of lockdown restrictions increasing after the relaxation of regulations lead to an increase of infections at the start of the winter,” a third producer said. “Stronger restrictions could be reapplied across the supply chain.”
Other producers were concerned the lifting of the lockdown was being made before the virus was fully under control.
“South Africa is not seeing the worst of the virus yet, it is not under control,” a manganese ore producer said.
Therefore, export flows out of South Africa can be expected to remain subdued.
“Constraints on production are likely to continue and we could well see a second wave of outbreaks later in the year,” a second manganese ore producer said.