Steel industry is central to South Africa’s industrialisation path says government

“Steel is one of the most important materials in the world. It is present in most aspects of the economy, from transportation and other infrastructure to more simple aspects like containers. Steel is used in the production of colossal structures, as well as small components for precision instruments,” said Trade, Industry and Competition Deputy Minister Fikile Majola in an address at the South African Iron and Steel Institute’s Southern African Steel Summit, held in Johannesburg recently.

“It is durable, adaptable and endlessly recyclable, making it the start of our journey toward reducing our carbon footprint and setting us on a path to a much greener industry.”

He noted that South Africa produced a number of valuable minerals used in the production of steel, as well as the steel, but pointed out the decline of the sector in recent years.

“South Africa is endowed with one of the most diverse and valuable mineral resource portfolios globally. These range from precious metals, ferrous and non-ferrous metals and other industrial metals. At the peak of the industry’s performance in 2010, South Africa accounted for 0.59% of global steel production. Due to the decline, our country accounts for just 0.23% of global steel output and is ranked 34th in the world.”

“We have a massive challenge on our hands and we need to work tirelessly to regain our position as one of the top producers of steel globally. South Africa’s steel value-chain, with backward and forward linkages, is critical in building a sustainable economy that is underpinned by multiple sectors that are dependent on the steel industry. The sectors that should support our quest to build a sustainable economy include construction, mining, automotive, energy, packaging and transport.”

“The value chain employs approximately 200 thousand workers while top steel consuming industries such as mining, construction and autos contribute a further R600 billion to the GDP (about 15%) and employ about eight million workers. This is the main reason the steel industry remains very important to the South African economy.”

“It is a serious cause for concern that the African continent accounts for just 1.12% of global steel production yet it has some of the world’s largest mineral reserves. Africa is home to about 17.9% of the world’s population, but accounts for 2.84% of the global Gross Domestic Product.”

Africa continues to urbanise at a rapid rate. It is estimated that in 2015, 50% of Africa’s population had urbanised, up from 39% in 2010. Today, Africa has 63 cities with populations of over 1.2 billion people, up from 49 cities in 2010 and 30 cities in 2000. To handle this migration, cities are expanding rapidly to become mega-cities. Building these mega-cities is going to require a lot of steel. As urban population densities increase, so too does the need for steel to build workspace, accommodation, and public-transport infrastructure.”

“The energy needs in Africa are driving the demand for renewable energy sources. Steel is a major material for many of these including solar, and wind power grids, and pipelines for water, gas, and resource management. Steel is therefore a crucial element to the advancement of Africa’s growth and we must work together to create opportunities for all industry role players.”

“The World Steel Association estimates average global apparent steel use per capita at 221.8kg in 2022, while in the same period, Africa’s leading producers, Egypt and South Africa stand at 100.3kg and 73.1kg respectively, thus illustrating the opportunities for accelerated development on the continent.”

African Continental Free Trade Area
Africa’s industrialisation needs has prompted the decision to create a large free trade area, through the African Continental Free Trade Area (AfCFTA). This will provide additional markets through preferential access and incentivise the development of regional value-chains, from iron-ore to steel, and beyond.

“Accordingly, the AfCFTA is one of the critical pillars of the steel masterplan, and reflects the role that steel will play in the integration of the continental economy through infrastructure connectivity and expanded intra-African trade in manufactured goods. Therefore, our fortunes as a country and the domestic steel industry are very much tied to the integration of the African continental economy. I urge you to take advantage of the strategic geographic location and competitive advantage within the continent.”

Steel and Metal Fabrication Masterplan
“The development of the Steel masterplan is a testament to the importance of this industry to the economy. As government we entered into a social compact with the industry and labour to support long-term growth of the industry. The masterplan has also been prepared to anchor the implementation of the Re-imagined Industrial Strategy and the Re-construction and Recovery Plan, both of which are primary movers for integrated steel demand growth.”

“Government conceptualised the masterplan as a turnaround action-oriented plan aimed at improving the overall competitiveness of firms, addressing levels of imports, increasing export participation and repositioning the industry to be resilient in the intense global pressures.”

“Since the master plan was adopted in 2021, 12 trade interventions have been implemented to support downstream industry competitiveness and growth. The price preference system was also extended for four years to ensure supply of scrap metal at competitive pricing to support value addition,” said Majola.

“The Industrial Development Corporation of South Africa (IDC), through its own balance sheet and the Downstream Steel Competitiveness Fund, has directed funding to support projects in the value chain.”

“In 2022, investments worth R5.2 billion were facilitated by the IDC, and 2 230 jobs were supported across the value chain. To support greater export efforts, the IDC has also partnered with the Export Credit Insurance Corporation and has established an intra-Africa trade facility to cover both commercial and political risks.”

“An energy resilience fund was launched in July 2023, with R15 billion contribution from the IDC to support firms on the supply and demand side of the energy problems. The IDC intends to reduce the impact, by providing concessionary funding to Energy Services Companies (ESCOs) to enable them to supply financed energy solutions to SMEs across all sectors of the economy.”

European Union plans to implement carbon border tax
“The carbon intensity of the South African steel value chain must remain a key concern to all of us as the world is transitioning towards a less carbon footprint. Reducing the impact of climate change through decarbonisation of the economy and moving towards green steel and technologies, are all gaining momentum internationally.”

“South Africa needs to engage on this path to reduce our impact on climate change and for our products remain competitive in global markets. The European Union plans to implement carbon border tax on a number of industries from October 2023, providing a 2-year transition period whereby only emissions reporting is mandatory without any financial payments.”

“The carbon tax, widely known as Carbon Border Adjustment Mechanisms (CBAM), stands to negatively affect South Africa’s manufacturing sector, in particular industries in the iron and steel, cement, aluminium, fertiliser, and electricity.”

The iron and steel industry in particular will feel the most brunt from this tax policy, with about R10 billion of exports based on 2022 data at risk, which represent 2.3% of South Africa’s exports to the European Union. The risk exposure is amplified by the fact that the European Union is a major export destination for South Africa’s exports, accounting for 21.8% of South Africa’s total exports in 2022.

“The de-carbonisation of the primary steel industry remains key, as an input into greener production further down the value chain. End user industries are showing growing interest in carbon-reduced/neutral steel products to decarbonise their own value chains and reduce market access risks; for example the automotive and renewable industries.”

“In conclusion, we firmly believe that with the effective implementation of the social compact between government, business and labour, the domestic industry will bounce back and regain its position in the global arena.”