The World Cup is expected to kick off in a few days time and while football fans may be rejoicing, metals traders are bracing themselves for trouble and a dramatic hike in prices. South Africa, the tournament’s host, faces a severe electricity shortage and the arrival of an estimated 450,000 football fans is expected to put added strain on its grid.
Some of the country’s largest electricity consumers, including the mining industry, have been asked to reduce their usage during the World Cup to ensure there are no blackouts. Xstrata has said that it would move an annual maintenance programme at its energy-intense ferrochrome smelters forward to coincide with the World Cup. The company said it wasn’t expecting any reduction in annual production of the metal, which is used to make stainless steel.
However, Eskom, the South African power utility, is under such strain that voluntary action may not be enough to prevent a crunch in supply. South Africa generates between 36 gigawatts and 39 gigawatts of power, depending on availability. Demand during the World Cup is estimated to be 37.2 gigawatts, prompting fears that electricity supply to big industrial consumers could be rationed.
Shamim Mansoor, an analyst with ETF Securities, said: “Can current capacity meet the increased demand from the World Cup? Eskom has already said it would ensure that there would be no interruption of supply to World Cup cities, so it may have to introduce force majeure and ration the miners.”
Moreover, the mining industry, which accounts for 15 per cent of South Africa’s electricity consumption, has already experienced rationing from Eskom. At the start of 2008, the utility was forced to limit electricity supplies after heavy rain damaged coal stocks. It began a system called load shedding, which involved rolling blackouts across parts of the country. South Africa’s largest miners, including Anglo American, Anglo Platinum and AngloGold Ashanti, were forced to shut down operations for several days.
The miners remained rationed for months and the sudden drop in production caused metal prices to spike. Platinum, which is used in catalytic converters for cars, rose by 24 per cent to $2,100 in the weeks after load shedding began. The price of ferrochrome doubled and gold prices gained about five per cent. and chrome were particularly badly affected because South Africa accounts for nearly three quarters of global production of these metals.
The electricity squeeze eased last year because the economic downturn reduced industrial demand for power.
South African electricity consumers still operate under the threat of load shedding and a meter on Eskom’s website shows when the danger of blackouts is high.
Ms Mansoor said: “Any load shedding introduced because of the World Cup is likely to cause another spike in prices.”
Eskom has said that it has asked some customers to reduce consumption during the World Cup, although the Government said recently that there would be no blackouts.
Eskom has begun an investment programme costing 385 billion rands (£335 billion) to double its electricity- generating capacity, but analysts have said that many of these projects have been delayed by lack of funding.
The company supplies 95 per cent of South Africa’s power and 45 per cent of electricity on the African continent. It also exports power to neighbouring countries in southern Africa.
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