Garth Strachan. Picture: TREVOR SAMSON

Garth Strachan. Picture: TREVOR SAMSON

WHAT IT MEANS: Global steel glut has caused prices to drop. State’s priority is to protect existing businesses.

The Industrial Development Corp (IDC), which only last year affirmed its commitment to build a US$5bn steel mill in SA together with Chinese investors, is unlikely to proceed with the investment.

"The [persistently] unfavourable global economic climate and continued oversupply in the global steel markets make it difficult to come to a conclusive decision," says Mandla Mpangase, public relations manager at the state finance institution.

The department of trade & industry (DTI) has cast doubt on the likelihood that the joint venture with Hebei Iron & Steel Group, China’s biggest manufacturer, will go ahead.

"It is not the best time to be talking investment in steel," Garth Strachan, DTI deputy director-general of industrial development, told the Financial Mail. "Our focus is on saving existing primary steel producers. This includes tariff measures for the upstream and downstream industry.

"Securing a new investment might have been a priority three or four years ago [but] it’s not a priority at the moment," he says.

The IDC had planned to invest in the new steel mill even though it already owns 74% of Scaw Metals and 8% of ArcelorMittal SA (Amsa) and has a stake in Evraz Highveld Steel & Vanadium. Its seeming about-turn coincides with weighted efforts by Amsa, the country’s largest steel producer, to mend bad relations with government.

Last month, Amsa agreed to drop import parity pricing on flat steel products, which government has long called for, saying that selling domestic steel based on international prices had led to high input costs and harmed the competitiveness of the downstream industry.

Amsa has also been slapped with a record R1.5bn fine for its role in a longstanding steel cartel and has committed to spending R4.5bn on capital expenditure in SA over the next five years.

The premise is that improved efficiencies will eventually create jobs.

Amsa CEO Wim de Klerk admits that there has been bad blood between the steel maker and government in the past.

"But I think this has changed of late. [Government] now sees us as a partner and we also see [it] as a partner," he says.

That government has agreed to protect the local industry, which is on its knees amid plunging steel prices and weak local demand, from dumped Chinese imports is a testament to the closer ties, says De Klerk.

In response to questions about the proposed steel mill, he says: "I think anyone who invests in a steel mill in SA will lose serious money, because the cake is just too small.

"Under the current market conditions, it is unlikely that government will build another big steel mill here As far as I know, it is off the charts."

The local subsidiary of the world’s largest steel maker has not made an annual profit since 2010. It is in the process of buying Evraz Highveld Steel, which went into liquidation last year.