Despite a marked downturn in the global stainless steel industry, there are a few medium-term developments on the horizon for Southern Africa, notes research institute Afriforesight Commodities chief commodity economist Nathan Musson.
“There are glimmers of hope in terms of investment in Southern Africa’s stainless steel industry.”
There are four noteworthy investments in this regard.
The first comprises the Chinese-supported $10-billion integrated metallurgical complex mooted for Limpopo's Musina-Makhado Special Economic Zone (SEZ), which would include three-million-tonne-a-year stainless steel capacity. The timeline for the plant execution is unclear currently as work on the supporting infrastructure and power generation capacity is expected to continue for the next few years.
Secondly, a reindustrialisation project by stainless steel and alloy manufacturer Lamergyre Alloys is in the feasibility stage and planned for the Eastern Cape's Coega SEZ.
“If all goes according to plan, construction will begin in 2021, with Phase 1 of production resulting in 2.5-million tonnes a year of stainless steel and 1.5-million tonnes a year of alloy steel from about 2024,” suggests Musson.
The third investment involves the world's largest stainless steel producer Tsingshan, headquartered in China, which is constructing a fully integrated, two-million-tonne-a-year stainless steel mill, in Zimbabwe, after recently signing a $2-billion agreement with the Zimbabwe government. Musson enthuses that this project’s investment potential is up to $10-billion, if the full scope is realised.
Stainless steel manufacturer and supplier Columbus – currently the only local stainless steel producer – has made minor investments to support its existing operations in recent years, with the construction of a new ladle furnace currently also under way.
In referring to the global stainless steel market, Musson says weak global demand growth and fast-growing Asian capacity are headwinds the local industry has “very limited potential to influence”.
Globally, the stainless steel industry is struggling, with a broad slowdown in economic growth, caused by the ongoing US-China trade disputes, he mentions.
While China’s transitioning to a service-based economy has led to a fundamental moderation in economic growth in recent years, its various trade concerns are compounding this effect.
A major ramp-up in low-cost capacity in Asia, primarily in Indonesia – where government will implement policies to restrict the export of nickel ore to promote the domestic beneficiation capacity –is adding to current industry woes.
This slowdown in global demand, coupled with accelerating supply growth, has resulted in lower prices and tighter profit margins for stainless steel producers globally, leaving marginal or inefficient operations at risk.
Musson points out that the local industry must deal with slower global growth and lower export demand – the latter not only because of weaker economic activity but also increasing competition – as well as very weak local demand growth, coupled with limited investment in large-scale metal-intensive projects.
This pressure is also amplified by steadily rising manufacturing costs, especially for electricity and labour, although the industry does still have the current advantage of mining and beneficiating the necessary chrome and manganese raw materials locally. Musson says chrome, nickel and to a lesser extent manganese are the key raw materials required to produce stainless steel.