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Uproar over chrome prices

Small-scale chrome miners are complaining about the pricing structure adopted by the Mineral Marketing Corporation of Zimbabwe (MMCZ) and Apple Bridge Investments, which they say is chasing away buyers and literally sabotaging exports.

BY MTHANDAZO NYONI

Walter Chidhakwa
Walter Chidhakwa

The government has, through Apple Bridge Investment – a special purpose vehicle established to facilitate chrome ore exports – set prices at which it buys the mineral from local producers.

Locally, chrome prices vary from $40 to $80 per tonne for lumpy chrome, depending on the grade, while chrome concentrates attract $84 a tonne.

On the export market, Zimbabwe’s chrome attracts between $80 and $100 per tonne for concentrates.

According to a position paper prepared by the Confederation of Zimbabwe Small Scale Chrome Miners (CZSSCM) member, Lindiwe Mpofu, the pricing structure should be aligned with global chrome ore market prices.

“The pricing structure is harmful and halting export sales. We are requesting under the mandate that CZSSCM has to harmonise with MMCZ/Apple Bridge that an immediate review be conducted and moving forward, the uniform price must be aligned with global chrome ore market prices,” reads part of the paper.

The paper indicates that over the past year and a half, the MMCZ/Apple Bridge arrangement has deterred international buyers due to the pricing being largely out of sync with the market.

“Evidence is shown by the shockingly low number of export buyers in Zimbabwe.

“This has ultimately led to the under capitalisation of small-scale miners as we are unable to execute consistent sales as the market avoids doing business in Zimbabwe due to extremely high pricing,” it reads in part.

“A clear example is the current situation where global chrome prices have greatly fallen since December 2016. Despite the price drop, MMCZ/Apple Bridge continues to hold a uniform price that is far higher than the market price.

“Currently, MMCZ has decided to hold prices at levels that far exceed the market prices. This has caused a halt to international trade with Zimbabwe”.

For example, Mpofu said 44% chrome was priced at $175 per tonne at the mine while current trade prices of the same grade delivered to China averaged $200 per tonne. This means that a buyer is expected to deliver the chrome to a smelter in China for $25 per tonne.

“The expectation by MMCZ/Apple Bridge is that all costs, including margin, are to be placed in the $25 dollar allowance,” she said.

“This is not possible. $25 cannot even cover the cost of transport out of Zimbabwe, which averages $60 to $70 per tonne.

“One of the causes of the high prices by MMCZ/Apple Bridge is that they have relied on chrome trading spot prices as a guide for Zimbabwe chrome prices.”

Mpofu said the spot prices used related to chrome being delivered to China CIF with all costs including distributor margins required to get the chrome to the Chinese port.

Mpofu said MMCZ/Apple Bridge pricing does not take into consideration the distribution costs, including margins required to deliver the chrome to Chinese ports.

“Based on this pricing structure, it appears that there is an expectation by MMCZ/Apple Bridge to have only end users such as international smelters and manufacturers buy directly from Zimbabwe as they have excluded the distributor’s costs [buying houses and traders] from their price planning,” she said.

The chrome client base is buying houses and minerals traders. End users such as smelters and manufacturers buy from buying houses and traders because they are the ones equipped to manage supply, reserves and quality, she said.

“The market relies on traders and buying houses to efficiently distribute the supply of chrome globally.

“Pricing chrome as though these important distributors of chrome do not exist has halted chrome sales in Zimbabwe. The pricing structure currently does not take into consideration the buyer’s costs or the types of buyers in the global marketplace,” Mpofu wrote.

To further stress the importance of buying houses and traders, she said these distributors typically buy from multiple sources ensuring supplies in excess of the 100 000 tonne range.

“These are the quantities necessary to ensure international smelters do not shut down and that there is no interruption in the supply of chrome during the manufacturing processes,” she added.

“Pricing as though MMCZ/Apple Bridge expects a manufacturer to buy directly from MMCZ/Apple Bridge is not an accurate expectation. Only a distributor can manage the quantities manufacturers and smelters require at the time they require it.”

Mpofu said when approached by members of CZSSCM to notify them of the pricing issue, MMCZ/Apple Bridge said they should wait the market out and not to make further pricing corrections.

“This means that they are willing to halt chrome sales in Zimbabwe. In other words, they would rather earn zero tax revenue for Zimbabwe and zero sales for the small-scale miner for the next six months to a year, while hoping the prices will rise to 2016 December prices caused by chrome inventory shortages,” she said.

“Halting trade by refusing to acknowledge market forces has affected the Zimbabwean small-scale miner,” she said.

However, MMCZ deputy manager marketing, Masimba Chandavengerwa said they were not chasing away buyers but the challenge was the volatility of chrome ore prices.

“The prices have been falling due to low uptake of chrome in China. It’s not that customers have run away and we are not chasing them away,” Chandavengerwa said, adding that even after they had told customers that they would quote prices on spot basis, they did not take a position.

Chandavengerwa said prices have fallen from $160 to between $80 and $100 “and even with those prices, no customer is prepared to take a position”.

“We are trying to push but customers are not there. If there is a producer who has got a customer, let him/her come forward with it and we finalise. We are there as their ambassadors. The problem is that we have middlemen who don’t care about production costs and therefore, these are the same people who are making a lot of noise,” he said.

Chandavengerwa said for chrome to reach its final export destination, it takes longer and as such, due to volatility of its prices, buyers were afraid to make losses.

As a solution, chrome miners recommended that MMCZ and Apple Bridge acknowledge the change in market direction and align prices to the market.

During this period, the trade prices delivered to China average $225, therefore, ex-mine prices should be calculated within the range of $65-$85 for market buyers to cover the distribution and margin costs in this downward market and as prices improve, we will revert upward on price along with the market, she said.

This action will serve to attract the 300-400 buyers required to re-establish the Zimbabwe chrome market.

“To mitigate the current situation, we request that immediate action be taken to save our sector in the current downturn. An emergency meeting must be called to rectify the current pricing structure,” she said.

“Buyers and investors are pulling out with immediate effect due to the fact that our pricing excludes the cost of distributing and moving the chrome to the final destination”.

She said miners require daily gazetted pricing for chrome products aligned with the world market pricing as this was the standard practice for globally traded commodities.

Mpofu said publicly published prices would also enable miners to plan their business according to the market price available.

Miners minister Walter Chidakwa recently told the Chamber of Mines annual general meeting and conference that Zimbabwe will rake in $3 billion in minerals exports this year mainly due to the rebound in chrome prices on the international market.

Zimbabwe and South Africa hold 70% of the world’s chrome reserves.

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