SECTION 2 CREATING A GROwING ANd SuSTAINAblE IRON ANd STEEl vAluE ChAIN IN SOuTh AfRICA KuMbA IRON ORE
2.1 EXECuTIvE SuMMARY The South African Government’s New Growth Plan and its Exploration & extraction and mining beneficiation (iron developmental objectives have initiated a broad debate on ore mining) : the optimal way to grow and enhance the South African iron • The iron ore industry can more than double output in the and steel value chain. Policy interventions can have positive, next ten years, creating 14,000 new jobs and uplifting as well as potentially unintended negative consequences in Limpopo and the Northern Cape. relation to complex value chains such as the iron and steel value chain, which is affected by a number of competitive • South Africa’s Limpopo and Northern Cape reserves can variables. best be developed through three iron ore hubs. Kumba Iron Ore Limited (Kumba) is deeply committed to • These exciting growth opportunities will require South Africa and to supporting the Government in achieving supporting infrastructure and market based iron ore its objectives to stimulate sustainable growth, employment prices. and development across the iron and steel value chain. It wishes to actively engage with Government, industry and • Growth in South African iron ore mining is not viable at other stakeholders, in the ongoing developmental debate discounted prices. in South Africa and, where appropriate, promote additional sustainable beneficiation. Metallurgical beneficiation and shaping (steelmaking): • South Africa has 10.3-11.6,mt of steelmaking capacity, South Africa needs a strong, competitive and growing iron of which approximately 50% is not needed domestically. and steel industry, across all four steps of the iron and steel value chain (being exploration and extraction, mining • South Africa is unable to export all of this excess beneficiation, metallurgical beneficiation and shaping steel capacity, given its costs are 30-35% higher than and conversion/fabrication and manufacturing/end-user competitors; even iron ore for free would not close this industries). gap. Section 1 provided background information on the iron • There is significant global overcapacity in steelmaking, ore and steel industries in South Africa. Building on this further amplifying South Africa’s export challenge. background, Section 2 is designed to help answer the following questions: • As a result, export volumes have destroyed economic value over the last ten years. • To what extent can growth in the iron ore and steel industries contribute to economy-wide growth in South • The iron ore price will have a negligible impact on Africa? downstream industries. • What actions by Government are needed to help firms • It would be difficult to reduce South Africa’s steel costs in the iron ore and steel sectors realize these growth through subsidised inputs, given that most costs are opportunities (high road scenario)? largely incompressible. • Are there things that Government should be careful to • The economics do not support new steelmaking capacity avoid doing – things that might frustrate growth in the in South Africa. However, should Government policy iron ore and steel sectors (low road scenario)? require new steelmaking capacity there could be two potential steel growth opportunities, both requiring A synthesis of the combined key messages from the two significant Government support and industry research documents is found below: and development Impact of state inventions: – Kumba is engaged with the IDC to research emerging • Successful Government interventions focus on industries steel technologies. that have/can have a structural competitive advantage. – An export slab mill would be the best option to build • The ingredients for robust growth are present in the additional steel capacity in South Africa. South African iron ore mining industry, but not in the steel industry. Conversion/fabrication and manufacturing/end-users (downstream industries): • Government interventions in the South African iron and steel value chain could have unintended negative • The ex-gate price of steel from steel producers is only 60- consequences. 70% of the total steel price eventually paid by customers. 19
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