South Africa’s Ferrochrome Industry on the Brink as Samancor Warns of Major Shutdown

A stark warning from one of South Africa’s industrial giants has sent shockwaves through the nation’s manufacturing sector. Samancor Chrome has announced it may be forced to shutter its ferrochrome smelting operations, a move that threatens thousands of jobs and signals a potential final collapse for a key industry.

A Perfect Storm of Economic Pressures

The potential shutdown is attributed to a perfect storm of crippling challenges. Soaring electricity costs, persistent transport bottlenecks, and volatile global commodity prices have created an unsustainable environment for energy-intensive industries. This announcement follows a similar caution from mining conglomerate Glencore just months ago, highlighting a systemic crisis.

Analysts are calling this the final flicker for the domestic ferrochrome sector. Many other smelters have already been mothballed, and Samancor’s facilities are believed to be among the last two major operations still running. The company’s statement serves as a public plea for intervention, indicating that without relief, it will initiate a large-scale redundancy process.

The Legal Pathway to Closure and Worker Safeguards

From a legal standpoint, the cited reasons for closure are unfortunately valid. Lucinda Hinxman, head of employment and labour at law firm CMS South Africa, explains that high operational costs constitute a lawful justification for retrenchment under South African labour law.

“They would be able to lawfully rely on the argument that they simply cannot operate with their current costs and the financial crisis the business is in,” Hinxman stated.

Should the company proceed, the process would be governed by Section 189A of the Labour Relations Act. This mandates a large-scale retrenchment consultation process, which can be facilitated by the Commission for Conciliation, Mediation and Arbitration (CCMA). This consultation, unfolding over a period of at least 60 days, is the primary safeguard for employees.

“The safeguard for employees is really the consultation process,” Hinxman emphasized. “It’s for them to be fairly represented and to ensure that all alternatives are fully explored.”

If retrenchments become unavoidable, affected workers are entitled to severance pay of at least one week’s pay for each completed year of service, as per the Basic Conditions of Employment Act, though collective agreements may provide for more.

Are There Any Viable Alternatives?

The central question during consultations will be whether any alternatives to total closure exist. The recent case of ArcelorMittal, which received a R1 billion bailout from the Industrial Development Corporation (IDC), offers a precedent. However, the effectiveness of such stopgap measures is questionable.

“Any bailout, if it happens, is just going to be kicking the can down the road,” Hinxman noted, suggesting that without a fundamental solution like guaranteed reduced electricity tariffs, the underlying problems would persist.

The Devastating Domino Effect on Communities and the Economy

The fallout from a Samancor shutdown would extend far beyond the company’s direct employees. The domino effect would ripple through entire supply chains and the communities built around these industrial operations.

“From an employment perspective, the impact is immense,” Hinxman explained. “If you’re talking about retrenching, let’s say, 1,000 people, that’s 10,000 people going hungry and without an income.”

These operations are often community anchors, and their closure would devastate concentrated populations. From a national perspective, it would force South Africa to export all its mined chrome raw materials, losing the significant economic value added by local processing and further weakening the country’s manufacturing competitiveness.

A Call for Government Intervention

The announcements from Samancor and Glencore are widely seen as a direct appeal for government action. The precedent for state stabilization of strategically important industries exists, and the clock is ticking.

“The government needs to step in if they want this industry to be saved,” Hinxman asserted. “They need to intervene now to maintain the economic benefits it generates for the country.”

As South Africa grapples with high unemployment and stagnant economic growth, the potential loss of its ferrochrome industry represents more than just corporate restructuring; it is a critical test of the nation’s ability to sustain its core industrial base.

Source: Adapted from an original interview on Moneyweb.