INTERNATIONAL investors are ready to enter a joint venture to establish a new steel mill, and the selection of a partner and the negotiation of a participation agreement is expected to be finalised by the second quarter of this year, Department of Trade and Industry acting director-general Garth Strachan said on Friday.
He stressed, however, that any agreement would contain "strong conditionalities" to ensure government control of the project to avoid the shortcomings that arose from the unbundling of Iscor, which resulted in the downstream steel industry not benefiting from development pricing as envisaged.
The new mill would use low-cost iron-ore tailings and not the lump iron ore used by ArcelorMittal SA, and would use technologies that would eliminate the need for importing expensive coking coal, which is the second-largest cost item in the production of steel using blast furnace technology.
The project would be based on the Industrial Development Corporation’s (IDC’s) acquisition of Scaw Metals, which would be used with Masorini in a combined operation. This would ensure the new operation had access to Scaw’s distribution network.
Mr Strachan was addressing Parliament’s trade and industry committee during a briefing on the report of an interdepartmental task team on iron ore and steel, which was adopted by the Cabinet in December 2012.The report recommended that the IDC fast-track the establishment of a new steel mill to strengthen competition in the steel sector.
Mr Strachan said the IDC had completed a prefeasibility study on a new steel investment and had concluded that a new steel mill could reduce the local price of a broad range of flat and long products by 10%.
A R350m detailed feasibility study is expected to start early this year. It is anticipated to take 18 months and will be conducted at the same time as an environmental impact assessment. The location of the mill would be vital as logistics costs were the single largest component in the cost of steel, Mr Strachan said.
In his introductory remarks Trade and Industry Minister Rob Davies stressed the need to develop a new competitive advantage for the beneficiation of mineral products in South Africa. He said a number of manufacturers had indicated they were willing to invest in South Africa if they had access to mineral products supplied at a price advantage on the local market.
Another outcome of the report was that the Department of Economic Development would introduce amendments to the Competition Act to ensure price concessions for iron ore enjoyed by primary steel producers were passed on to downstream users.
Appropriate powers would be accorded to the authorities to determine pricing methodologies, monitor compliance and sanction noncompliance, Mr Strachan said.
"This may be achieved through powers given to the competition authorities or other bodies including regulators, where appropriate, given the nature of such strategic industries," he said. The legislative amendments to the Competition Act would be finalised by June.
Another proposal arising out of the report was to safeguard the supply of affordable scrap metal to domestic mills and curtail its abuse.
Economic Development Minister Ebrahim Patel has issued a draft metal policy directive to the International Trade Administration Commission (Itac) regarding the granting of scrap metal export permits. This was gazetted last month for public comment.
The policy proposes that scrap metal cannot be exported unless it has first been offered to domestic users at a price discount determined by Itac. The target date for the implementation of the policy is April 1.