IDC to make final decision on new steel mill with Hebei

SOUTH Africa’s Industrial Development Corporation (IDC) would make a final decision on whether to build a new steel mill with Hebei Iron & Steel Group by the middle of next year, the IDC said yesterday, even as producers in the country were closing operations and cutting jobs amid low demand and rising imports from China.

Abel Malinga, the head of mining at the state-owned company, said the IDC was finalising a feasibility study of a proposed $5 billion (R68bn) mill that would produce as much as 5 million tons of steel annually, or about 71 percent of South Africa’s current capacity.

Scaw Metals Group, in which the IDC holds a 74 percent stake, incurred a loss of R1.1bn in the year to March and is planning to cut 1 000 jobs, according to a presentation by the developmentfinance institution.

Job cuts

“It is not an ideal environment to talk about new steel capacity of that magnitude in South Africa knowing very well there’s about 28 percent oversupply worldwide,” Malinga said. “We know its not a cool thing to do right now, but the kind of planning and investment we are looking at is long term.”

South Africa’s largest steelmakers including the local unit of ArcelorMittal have announced plans to cut a total of more than 2 400 jobs as a surge in subsidised Chinese imports supplied at prices as much as 25 percent below local production costs have squeezed producers’ margins.

Struggling to compete, the companies have asked the government for more protection measures after the introduction of a 10 percent tariff on galvanised, aluminium-zinc coated and colour-coated steel last month.

The new mill would produce steel cheaper than other incumbents through utilising its own sources of inputs including iron ore and coking coal in a plant equipped with new technology, Malinga said.

Other steel producers risked going out of business completely as they failed to invest in more efficient technology, he said, adding that Chinese imports would decrease once economic growth accelerated in that country.

If the IDC’s venture with Hebei proceeded, it was forecast to produce its first steel by 2020, Malinga said. In February, the company estimated first production by 2017.

He said the mill would be located near Witbank or Richards Bay. – Bloomberg