New Zimbabwe steel mill rattles S. Africa competitors
South African steelmakers are growing anxious as a new steel mill in Zimbabwe appears poised to supply into the regional market at highly competitive rates.
The Dinson Iron and Steel Company (DISCO) started up production in July this year and has ambitions to become one of the lowest cost steel producers in the world.
South African steelmakers meanwhile are already taking strain and, according to industry sources, have written to the Minister of Trade and Industry Parks Tau, calling on him to intervene.
In phase one, which is now complete, the DISCO mill has capacity to produce 600,000 t/y of pig iron and billets, volumes of which are already being sold into the South African market.
DISCO is now finalizing the rolling mills which will allow it to roll long steel production with production to grow to 1.2 mt/y in phase two and to 3.5 mt/y in phase three.
According to Disco’s promotional material, it aspires to expand to produce 20 mt of carbon steel per annum by 2030.
A subsidiary of Tsingshan Holding Group of China, Disco is located some 150km south-west of Harare, where it draws key inputs from its own iron ore and coal mines, as well as its own 50MW power plant. The $1.5bn operation also has access to cheap labour in the Zimbabwe market and has been exempted from paying taxes for five years.
Zimbabwe is home to 11 steel producing mills and two re-rolling mills, with an effective steelmaking capacity of more than 8 mt/y. Two of the steel mills are, however, in business recue and one is in care and maintenance, leaving the others at a utilisation rate of below 55%. The South African market meanwhile consumes about 4.5 mt/y.
DISCO’s plans are to produce long steel products – something which is in oversupply in South Africa, where scrap steel policy has helped mini and micro-mills flourish, thereby pushing long steel prices down.
On the flat steel side, ArcelorMittal South Africa has traditionally been the only producer and import duties have been implemented to protect the company from the worst impacts of cheap Chinese imports.
But given that Tsingshan is the biggest stainless steel producer in the world, industry observers expect DISCO will eventually expand into flat steel products.
Charles Dednam, secretary general of the South African Iron and Steel Institute, said South African steelmakers will be hard pressed to compete with DISCO, which has several cost advantages and will also be producing a high valued product made from virgin ore.
Dednam said the only remedy accessible to South Africa is countervailing duties (intended to offset the price effect of significant foreign government subsidies on a product). “The way that they’ve been subsidised by the Zimbabwean government is a countervailing case,” he said.
Mike Benfield, CEO of Macsteel, a leading merchandiser and distributor of steel and value added services in South Africa, said the new mill is bad news for the steel value chain in South Africa which has too much capacity.
“We don’t want more mills on our doorstep, upsetting the market even further. And particularly when they’ve got apparently such a good cost advantage that they will come in and undercut,’ he said.
Gerhard Papenfus, CEO of the National Employers’ Association of South Africa, which represents companies in the steel downstream, said the emergence of DISCO could be good news for manufacturers in the downstream “who want good quality steel at the best possible price”.
But he said it would depend on how the industry, and government, respond to this development. “We’ll have to see how that plays out,” he said.