South African State Lender Seeks Energy Supplies for Steel Mill

South Africa’s state-owned Industrial Development Corp. is pressing ahead with proposals to build a new steel mill once it can secure sufficient energy supplies.

The planned steel plant moved a step closer to fruition after the IDC, as the lender is known, obtained access to a key steelmaking feedstock last month.

“There are certain constraints around some inputs,” Abel Malinga, the IDC’s head of mining, said yesterday in a telephone interview. The lender has yet to work out how it will gain access to required electricity and gas supplies. “We need to make sure the planning is synchronized so that there are no bottlenecks,” Malinga said.

The IDC is part of a group including Hebei Iron & Steel Co Ltd. (000709), China’s biggest steel producer, that acquired a 74.5 percent stake in Palabora Mining Co. (PAM) for about 4 billion rand ($400 million) from Rio Tinto Plc (RIO) and Anglo American Plc. (AAL) The IDC holds a 20 percent interest in the group.

Palabora’s main asset is a copper mine in South Africa’s northern Limpopo province where it has amassed a 240 million-ton dump of magnetite. Access to the magnetite, a steelmaking ingredient, will support the IDC’s plans to build a steel plant to compete with ArcelorMittal South Africa Ltd. (ACL) and Evraz Highveld Steel and Vanadium Ltd. as the government seeks to introduce cheap sources of steel to the local market.

South Africa has capacity to produce about 7 million tons of steel a year, compared with demand of about 5.4 million tons, Malinga said. The proposed steel plant would be capable of producing 2.5 million metric tons of steel a year, the IDC said in December.

Flat Demand

ArcelorMittal South Africa, the continent’s biggest steel producer, yesterday reported a first-half loss and said it expects earnings to be even lower in the third quarter due to flat demand and higher costs.

“Domestic sales are expected to remain flat and any increase in steel prices will be more than offset by increasing costs,” the unit of ArcelorMittal said in a statement.

The IDC is preparing to meet an anticipated increase in demand over the next two to three decades in South Africa and the rest of the continent, Malinga said.

“Steel is an important input for any developing economy,” Malinga said. “Any further growth we may have to import, but if we plan properly we will have the additional capacity required.”

South Africa and Egypt account for about 80 percent of the continent’s steel production, Malinga said.

ArcelorMittal South Africa is best positioned to benefit from the anticipated growth in steel consumption in Africa because it owns a steel mill at the Saldanha port in the Western Cape, Stephen Meintjes, head of research at Johannesburg-based Imara SP Reid Ltd., said by phone.

“Steel consumption in Africa will undoubtedly grow very steadily but there can be competition from other exporters,” Meintjes said.

The IDC is part of a group that last year bought a controlling stake in Scaw Metals Group, a South African steel product manufacturer, from Anglo American for $1.4 billion.

To contact the reporter on this story: Andre Janse van Vuuren in Johannesburg at ajansevanvuu@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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