Govt nears deal on foreign-backed steel venture

[miningmx.com] – DISCUSSIONS with potential offshore investors for the establishment of a new steel producer in South Africa were “… at a relatively advanced stage”, the trade and industry department (DTI) said in a statement.

New steel capacity, which is being spearheaded by the Industrial Development Corporation (IDC), would support government’s steel developmental pricing policies, and align with a raft of other measures including changes to mining law and the Competition Act.

The proposed overhaul of steel pricing in South Africa follows cabinet’s support today of recommendations in a report compiled by the Inter-Department Task Team (IDTT) of Iron Ore and Steel by Cabinet. The IDTT was formed in 2010 in the wake of a dispute between Kumba Iron Ore (Kumba) and ArcelorMittal SA (Amsa) regarding the price of iron ore supply with Kumba saying a historic cost plus 3% agreement on iron ore to Amsa should be altered to reflect market-related pricing.

The recommendations approved by cabinet would “… give effect to government efforts to secure a developmental iron ore and steel price in support of downstream, value-adding industries of the manufacturing sector,” the DTI said.

They included changes to the Minerals and Petroleum Resources Development Act (MPRDA), alterations to the Competition Act, and the strengthening of terms that fall under the International Trade Administration Act that would more tightly regulate the export of scrap metal.

An earlier annoucement from the IDTT that it would seek to impose export levies on iron ore and steel had been made in error by the DTI. “I can tell you unequivocally that measures to impose export levies are not on the agenda. Only the National Treasury can impose such taxes,’ said Garth Strachan, acting deputy director-general at the DTI.

In addition to the DTI, the IDTT also combines the efforts of the mineral resources, public enterprises and economic transformation departments.

Strachan said the changes to the MPRDA and the Competition Act would ensure that the discounted supply of iron ore to steel producers would be passed on to the end-user of the steel.

He acknowledged, however, that the proposed legislative changes would render negotiations on a new iron ore supply agreement between Kumba Iron Ore and Amsa irrelevant. “The minister [Rob Davies, trade and industry] has said in the past that an agreement between Kumba and Amsa will not receive the blessing of the DTI if it is prejudicial to the long-term interests of developmental iron ore prices passed as a discounted steel price to the manufacturer,’ Strachan said.

In a reference to Amsa, Strachan said: “We sit on huge natural resources of iron ore and have cheap reductants, but the discounted iron ore we have is not passed on to the end-user. Instead it has been simply absorbed as profits. We have a steel price in the highest quartile globally whereas South Korea, which has no iron ore and quite high labour costs, produces steel in the lowest quartile’.

New steel producer

Strachan said the proposed steel manufacturing investment would be for a niche, high-value product aimed at the manufacturing sector. “We will be fast-tracking this,’ he said.

However, the investment would include conditions that ensured developmental steel pricing and avoid the mistakes of the unbundling of Iscor which Strachan said was simply a commercial arrangement that had no grounding in legislation.

“We are fully mindful that any investment has to make business sense and therefore due process would be followed,’ he said. “It will be possible to build agreements where a partnership with investors and the IDC wil lensure national objectives are met,’ he added.

The IDTT document also referenced the “. strategic utilisation of state infrastructure to support development outcomes .’. It’s thought this relates to providing discounted freight rates on the Sishen to Saldanha railroute that Transnet Freight Rail, a division of state-owned Transnet, was currently expanding.