Merafe Resources, a South African chrome and ferrochrome producer, reported a 64% jump in half-year profit to 518 million rand, even as ferrochrome output from its joint venture with Glencore slumped 75%. The results, released on Monday, show how higher chrome ore prices and sales volumes helped offset the pain of suspended smelting operations.
Chrome ore shines, ferrochrome struggles
In the six months to June 30, chrome ore revenue surged 78% to 1.8 billion rand, as sales volumes climbed 75% and prices rose 11%. That strength in the ore business more than made up for a sharp drop in ferrochrome production, which fell to just 28,000 metric tons after suspensions at the Wonderkop and Boshoek smelters.
Ferrochrome is an alloy used in stainless steel production, and it is made by smelting chrome ore in electric arc furnaces. Those furnaces are extremely energy-intensive, and in South Africa, where electricity supply has been unreliable and prices have risen sharply, running them has become increasingly uneconomical. Merafe and Glencore, its partner in the Glencore-Merafe Chrome Venture, have periodically idled capacity when power costs or market conditions made production unprofitable.
The contrast between the two sides of the business is stark. Digging and selling chrome ore is relatively simple and profitable, especially when prices are firm. But converting that ore into ferrochrome requires huge amounts of electricity, and that is where the pain lies.
Power tariff relief offers a path back
The company said that a discounted power tariff from South Africa's energy regulator, NERSA, set the stage for smelter restarts in June. That suggests the economics of running the furnaces have improved enough to justify bringing some capacity back online, at least partially.
This is a key development for Merafe and for the broader South African ferrochrome industry, which has been squeezed by high electricity costs and load-shedding. The tariff relief could help restore output and improve margins in the second half of the year, though the pace of restarts will depend on market conditions and the reliability of power supply.
What it means for investors
For investors, Merafe's results are a reminder that commodity producers can be exposed to very different dynamics across their product lines. The company's profit growth was driven by the ore business, which benefited from strong demand and pricing. But the ferrochrome slump shows how operational challenges, particularly around energy, can weigh on a company's overall performance.
The discounted power tariff is a positive sign, but it is not a guarantee of a full recovery. Investors will be watching how quickly Merafe can ramp up ferrochrome production and whether chrome ore prices hold up. The company's ability to manage its energy costs will be a key factor in sustaining profitability.
Merafe's experience also highlights the broader challenges facing energy-intensive industries in South Africa. While the country has abundant mineral resources, the cost and reliability of electricity remain a competitive disadvantage. For companies like Merafe, the path to higher profits often depends as much on energy policy as on commodity markets.
As the second half of the year unfolds, investors will look for updates on smelter restarts and any further moves in chrome ore prices. The company's ability to balance its ore and ferrochrome businesses will determine whether the profit momentum can continue.
