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SA govt forges cheaper steel policy

Lynley Donnelly

The government is looking at ways to secure cheaper steel for a downstream manufacturing industry.

Plans are afoot to make part of Kumba's Sishen mine's production available locally at a discounted price. (Madelene Cronje, M&G)

Including through the amendment of mining laws to ensure that a certain amount of minerals is made available at discounted prices for local beneficiation.

It has not ruled out export taxes on iron ore and steel products, although these would not be the government's "first call", Trade and Industry Minister Rob Davies said on Wednesday. Instead, measures such as amendments to the Mineral and Petroleum Resources Development Act could have the same desired effect as export taxes.

An amendment Bill, which will be released for public comment soon, would allow the minister to determine whether a certain amount of local minerals should be made available at discounted prices to support local beneficiation, Davies said.

That and other recommendations, outlined in a report by an inter­departmental task team looking into the iron ore and steel value chain, were endorsed by the Cabinet last week. The move comes a week before the ANC's conference in Mangaung, at which the party will discuss whether the state should play a greater role in the minerals sector.

Davies said the provision in the amendment Bill was important because the state was seeking to ensure in a number of ways that part of the country's iron ore, produced at Kumba Iron Ore's Sishen mine, was made available at a discounted rate.

Sishen is one of South Africa's major sources of iron ore, which is a primary feedstock in the production of steel. Apart from Sishen, the rest of South Africa's iron ore comes mainly from iron ore fines – typically the by-product of other mining activity – and scrap metal.  

Downstream industries
But it would be more difficult to ensure that the benefits of cheaper iron ore were passed on in the form of cheaper steel prices for downstream industries, Davies said.

Part of the state's strategy to address this includes increasing competition in the steel sector by supporting the establishment of new domestic steel production capacity.

The country's steel is supplied predominantly by ArcelorMittal South Africa. The company is currently in a contractual dispute with Kumba over the supply of 6.25-million tonnes of ore from Sishen at a preferential rate of cost plus 3%. But ArcelorMittal has been accused by the government for many years of not passing on the cost benefit in the form of cheaper steel, although the company has consistently denied this.

The state remains determined to bring down steel prices for local manufacturing, a process that is being spearheaded by the Industrial Development Corporation.

Davies said further announcements could be expected about the production of steel.

This week, the sale of Rio Tinto and Anglo American's interests in the Palabora mine to a consortium comprising the corporation and three Chinese companies for R5.3-billion was announced. The mine produces mainly copper, but also magnetite, another source of iron.

The Industrial Development Corporation forms 20% of the consortium; Hebei, a steel producer wholly owned by the Chinese government, 35%; General Nice Development Ltd, a privately owned Chinese trading company, 25%; and the Tewoo Group, also wholly owned by the Chinese government, 20%.

Downstream consumers
Anglo American and Rio Tinto declared their intent to sell their shares in the mine, 15% and 57% respectively, earlier this year.

Davies said a different technology was needed to produce steel from this form of iron ore, supply, but the Palabora deal was one example of the state looking to support more local steel production.

"We'll be encouraging more of those kinds of investments," he said.

The government's intention was that a "significant part" of the resources from Palabora would be used to manufacture steel for use in South Africa, he said.

Other recommendations the task team made include amendments to the Competitions Act to ensure that the iron ore price concessions accruing to the primary steel industry are passed on to downstream consumers. This will require the power to determine pricing, monitor compliance and sanction noncompliance.

"We want to be able to act against cases of monopoly conduct," Davies said. "We want to ensure that we don't find that there is collusion between steel production and steel trading and matters of that sort."

Special pricing agreements
The report also recommends tighter control measures for the export of scrap metal and for the support of greater competition in the steel sector, including by making electricity available for new steel producers a priority.

"Where we use electricity for smelting mineral products, we would want to see priority given to strategic ­minerals smelting of our own resources that support downstream manufacturing," Davies said.

Companies such as BHP Billiton have benefited from special pricing agreements for electricity supplied to its aluminium smelters in Richards Bay. This has been a drain on South Africa's limited electricity supply and on Eskom's financial position.

"We have given preferential pricing arrangements to smelting operations that have imported the raw material, exported the output and the only thing that the South African economy has done is to provide the cheap electricity," he said.

"From now on, if there are to be any such [pricing] considerations …we would want to see them around support for local mineral products that are going to feature as part of the competitive environment for manufacturing in South Africa."

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