The announcement that Saldanha Steel is to be shut down is very sad and yet another blow to our limping economy. It is, however, an interesting case and should be studied for lessons for the South African economy, and for how we can achieve greater industrialisation.
You often hear people who don’t understand economics saying, ‘You cannot have infinite growth with finite resources’. Actually, you can. Steel helps to explain why. It is by far the most important structural material, a composite of iron, carbon and other elements. Iron making, the precursor to steel making, was invented over five thousand years ago, and steel is now used in enormous quantities all around the world.
How many atoms of iron have been consumed in the last five thousand years? None. The iron atom is immortal (like all stable atoms) and can be recycled until the end of time. There are such vast quantities of iron on Earth that we will never use more than a tiny fraction of them in the remaining life of the planet. Steel allows economic growth indefinitely – and a jolly good thing too, despite the protestations of Sweden’s rich schoolgirl prophetess, Greta Thunberg. Fortunately, she herself encourages economic growth by using extremely expensive artefacts such as luxury yachts, which are now only available to the wealthy elite such as herself but might in future be available to everyone if there is sufficient growth.
Steel making comes in two processes. First, iron ore (consisting of various iron oxides) is reduced with carbon, usually in the form of coking coal, to make cast iron, which has about 4% carbon content. Then the cast iron is oxidised to reduce the carbon content to 2% or lower to form steel, which is tougher, harder and more malleable than iron. Various other elements, such as manganese, nickel and chrome, can be added to make specialist types of steel, such as stainless steel. South Africa has huge reserves of bad coal (high ash, low energy) but very little coking coal. This shortage was a problem for our steel makers. Saldanha Steel was designed in an ingenious way to overcome it.
Saldanha uses ordinary coal, iron ore and oxygen in the combined ‘Corex’ and ‘Midrex’ processes, and then an electric furnace to make high quality rolled steel sheet. As you drive past Saldanha on the R27, you can see the various towers of the plant. The tallest structure is the oxygen plant, which makes oxygen from air.
South African steelmaking began with Iscor, a state company, in 1928. It was conceived as strategic rather than commercial, to form a base for industrialisation in the country. Many countries around the world had the same notion about steelmaking and some still do. This led to much subsidisation, which, combined with technical advances, led to dropping steel prices. Iscor was privatised in 1989. In 1995, Iscor and the Industrial Development Corporation launched the Saldanha project, which began producing steel in 1998. After complicated mergers, it became owned by ArcelorMittal, an international group, in 2006. And now ArcelorMittal has announced that Saldanha Steel will be closed, with the loss of over 500 jobs. They say it is losing money because of the increased prices of coal, ore, electricity and transport, and falling prices of steel worldwide, and lack of demand.
Paradoxically, its closure might be of assistance to South African manufacturing, because it might now be able to buy cheaper imported steel. In this case, foreign subsidies on their steel might serve as subsidies on our manufactured goods. Trade wars, with tariffs and subsidies, have complicated results. When President Trump raised tariffs on European steel and aluminium, Europe responded by raising tariffs on US manufactured goods. Harley Davidson, the iconic American motorbike, hit by higher steel prices and tariffs on exports to Europe, responded by moving some of its production out of the US – to Trump’s rage.
What is the best path for South African industry now? In the past, we were very successful technically with many huge and new industrial projects. Sasol is by far the world’s biggest company for making liquid fuels from coal. Eskom made by far the world’s biggest air-cooled power stations (to compensate for our acute shortage of water). Saldanha Steel was technically successful with a new steelmaking technology. The Pebble Bed Modular Reactor was technically advanced. But technical prowess does not always lead to commercial success, and we need to study why. We still have the world’s greatest mineral treasure, including specialist metals such as platinum, chrome, vanadium and manganese, and surely we could find ways of exploiting these in high-value materials and goods. First, of course, we’ve got to throw out our crippling mining regulations.
There are many commentators who say that a successful industrial economy in South Africa under the African National Congress is simply impossible. They will nod their heads sadly over Saldanha Steel.
The views of the writer are not necessarily the views of the IRR.
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