The Up-Change in Africa’s Steel Demand
The Up-Change in Africa’s Steel Demand
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Despite being arguably the most mineral-rich continent in the world, Africa’s mining production, including steel, has low production and consumption rates. South Africa, the seventh-largest producer of iron ore and fourth-largest exporter worldwide, has focused on exports, particularly to the fast-growing Chinese economy.
However, Africa’s crude steel consumption is only 2 per cent of global consumption, despite producing a similar percentage. Given steel’s importance in construction and industry, Africa’s low consumption indicates poor economic health.
The situation may seem bleaker than it may seem since the GDP growth rates are hovering around 5 per cent, indicating a rapid transformation. This is evident from the expansion of the steel rolling sector, which serves as a strategic starting point for developing an entire steel industry.
But what has fueled this growth in the steel industry?
The global economic crisis has brought about a silver lining for Africa. Over the past few years, loose monetary policies in the West have made the continent more appealing as an investment hub, particularly for housing and infrastructure development, which offer attractive returns.
To shed some light on the brighter side, the FDI into Africa will reach around 150 BILLION US dollars by 2015 from 84 BILLION in 2010, with solid growth in new projects.
The increased focus on developing infrastructure in Africa has led to a rise in demand for steel, resulting in the establishment of new steel rolling mills or upgrades to existing ones to meet this demand.
Establishing steel rolling mills has resulted in the creation of job opportunities both directly and indirectly. Moreover, producing finished steel products locally has led to savings of hard currency that would have been spent on importing those products.
In Nigeria, the annual steel consumption is estimated at 1.5 million tons. This year, a new steel rolling mill with a capacity to produce 65% of this consumption has been established.
Similarly, in the East African region, Kenya’s yearly requirement for steel is estimated to be around 480,000 to 600,000 tons, and it imports approximately 20,000 tons each month, as per specific estimates. In the previous year, a plant worth US$1.3 billion was constructed in Mombasa to cater to the domestic industry’s demand, producing 84,000 tons of steel annually.
In addition to the newly established US$1.3 billion steel plant in Mombasa, there are four other significant players in the Kenyan steel industry. According to the Trade Ministry’s data, metal and steel products are the most important manufactured goods currently exported by Kenya within the Common Market for Eastern and Southern Africa (COMESA) and East Africa Community (EAC) regions. The economy could greatly benefit by reducing the steel import bill, which currently stands at over Ksh5 billion (US$60 million) per year.
Roofings Rolling Mills in Uganda has invested US$100 million in upgrading its facilities by establishing a Pickling, Cold Rolling, Batch Annealing, Galvanizing, and Color Coating plant. This move has increased the plant’s capacity to 150,000 tons annually, making it the largest in East Africa.
As in other Sub-Saharan African countries, opportunities abound in Uganda, with growing demand for steel in the local and broader regional markets.
In Nigeria tale, the growth of the steel rolling industry is paving the way for vertical integration into iron ore mining. In Nigeria, establishing a new steel plant relies on imported steel billets for raw materials until a solution is found to transport the mined iron ore from Itakpe in Kogi State.
But sustaining all of this won’t be easy as there are challenges ahead. Challenges like:
Establishing a steel rolling mill in Africa presents two significant challenges: poor road networks and unstable power supply, increasing business costs. However, as more governments invest in improving roads and power stations to eliminate these impediments, these factors will become less significant and offer better returns. Moreover, infrastructure development creates a ready market for the mills’ products.
Apart from facing infrastructure challenges, Africa’s steel rolling industry must also grapple with the high cost of imported raw materials and stiff competition from cheap, low-quality finished products. However, the biggest challenge is posed by scrap metal export dealers who offer attractive prices, causing a drain on the local industry. Although the steel rolling industry depends on recycling scrap metal, the high export prices make it more lucrative to sell scrap metal abroad, leading to a shortage in the local market and forcing mills to either pay more for the scrap metal or import it from overseas.
The competition between scrap metal exporters and steel mills has been a significant challenge for the African industry. However, in recent times, the mills have been winning this battle. Several African countries, including Ghana, Nigeria, Ivory Coast, Kenya, Cameroon, and Zimbabwe, have implemented laws prohibiting the exportation of scrap metal. South Africa has also joined this trend by giving the International Trade Administration Commission the power to regulate scrap metal exports. The commission can now prevent exports if the metal has yet to be first offered for local beneficiation at a discounted price of 20 per cent.
Accelerating infrastructure development is crucial for Africa to realize its potential for industrialization and reduce its dependence on imported steel products. The benefits of local steel production in terms of savings in hard currency and job creation in the semi-skilled sector would outweigh the benefits of relying on imported cheap steel products from the East.
UAE is a potential saver for Africa as they plan to invest in the continent with better quality and excellent mutually beneficial deals. Companies like Alkun Steel have started investing and getting on board in Africa to solve the problem of raw materials and suppliers, and the result has been fascinating.
