COMMENT: No news does not mean South Africa’s chrome ore tax has been shelved

The chrome market was shocked in October 2020 when the South African government revealed plans to impose a chrome ore export tax, but the subsequent lack of news probably hides activity behind the scenes rather than indicating that the plan has been quietly dropped.

There was uproar in the chrome market after Jackson Mthembu, South Africa’s minister in the presidency, announced that the government planned to impose an export tax on chrome ore.
Proponents believed that it would bring much-needed tax income into the government, while boosting the competitiveness of the downstream ferro-chrome industry by adding to the costs of competitors, chiefly China.
And this could be achieved with minimal negative effects on South Africa’s existing ore industry because of the resource-rich country’s huge reserves.
Detractors, meanwhile, said that the tax would boost the competitiveness of other countries with ore reserves, such as Zimbabwe and Turkey, and harm South Africa’s mining sector.
They also pointed out that South Africa would need to make its electricity supply fit for purpose if it were to attract investment in its energy-intensive ferro-alloy sector.
Since October 2020, the South African government has been quiet on the matter, but speculation has been rife about the level at which the tax would be imposed and when, even if, it would come into force.
The majority of the sell side of the chrome ore market thought that the ore export tax would be imposed within six months of December 2020, according to a Fastmarkets poll of market participants published in January.
After months of silence from Pretoria, there had been speculation that South Africa’s finance minister, Tito Mboweni, would use his budget announcement on February 24, 2021, to update the situation.
But the budget speech made no mention of chrome ore, and months continue to pass since the original announcement.
This lack of news in the public domain has fed opinion that the export tax may have been quietly shelved, as has happened previously with other proposals.
A chrome export tax has been suggested previously, being widely debated in 2012 before it was ultimately sidelined.
While nothing definitive can be stated at the moment, there are no indications that the proposal has been dropped.
Instead, ChromeSA, a group of South African chrome ore producers opposed to an export tax, has taken the delay as a signal that the government is having second thoughts.
And it has asked for the government to engage with it.
“ChromeSA noted the absence of a reference to the chrome ore tax in last week’s budget, and hopes that this is an indication that the government is rethinking the proposal,” a spokeswoman for Chrome SA said. “The group continues to call on government to engage with us in order to look at alternatives to the proposed tax.”
The group believes that an export tax would seriously damage South Africa’s primary chrome ore sector, without giving any real benefit to ferro-chrome producers.
South Africa’s finance and mineral resources ministries were approached for comment but were non-committal.
“There was no chrome tax mentioned in the budget, so there is nothing to comment on,” the finance ministry said.
The call for engagement from ChromeSA to the government suggests that the proposal remains active behind the scenes, but that the group is not aware of any decision.
“I suspect an announcement has been pushed back because of lobbying behind the scenes,” a trader said. “Lobbying may be delaying it, but the government desperately needs the revenue.”
The imposition of an export tax would have implications for chrome-consuming countries. Chief among these would be China, but other parts of Asia, as well as other markets such as Europe and the United States, would also be affected.
And this could lead to delicate discussions at a time when the South African government is also dealing with the onerous health and economic implications of the Covid-19 pandemic.
Additionally, within South Africa, the government will need to find a balance in the conflict between the integrated chrome alloy producers and the ore producers.
“There’s a lot that needs to be done before the tax is implemented, and the government hasn’t started any of these yet,” an alloy producer said. “They are focusing on vaccines and economic recovery at the moment.”
At this stage, the indications are that the government’s proposals remain in play - and possibly even on track - but it may take some time before the process reaches any conclusion.
In Fastmarkets’ poll of market participants, the majority of those on the buy-side expected it would be more than six months from December 2020 before a tax would be imposed.
At this stage, the buyers’ predictions appear more likely to be accurate than those of the sellers. It may be worth noting that, in the poll, only a handful of sellers - and no buyers - thought that the tax would never be imposed.

Jon Stibbs

jon.stibbs@fastmarkets.com

Published

Jon Stibbs

March 04, 2021

19:37 GMT

London