An African Detroit in the making?

Two massive iron and steel projects, should they come to fruition, will transform the bleak economies of Northern and Eastern Cape in South Africa. Indeed, this could be the catalyst required for rapid expansion in Southern Africa's automotive industry.

The ambitions of southern Africa's rapidly expanding iron and steel industry appears to know no bounds. In addition to the opening of the state of the art Saldanha Steel mill in the Western Cape in 1998, and advanced plans for the opening of two massive direct reduced iron plants in Mozambique in 2000, major players in the sector have now put together exciting new proposals. If implemented, they would see the establishment of a 2m tonne per year iron carbide plant at Sishen in the barren Northern Cape, which would feed 40% of its output to a 1.2m tonne per year steel plant in the Eastern Cape.

Both proposals are likely to garner considerable government support as they are situated in employment blackspots which, especially in the case of the Eastern Cape, have provided strong electoral support for the ANC.

The iron carbide plant would be sited near steel maker Iscor's Sishen iron ore mine and would involve the laying of a gas pipeline from Sasol's plants in the Orange Free State or from the Kudu gas fields off the Namibian coast. The existence of a gas supply in this unindustrialised part of South Africa could attract other industries to the area and it is this fact which could possibly see the provision of government support in the form of subsidies or infrastructural finance for the project.

The project developers are JCI who have been spurred by the success of their Beira Iron project in central Mozambique.

Output from the plant would have to be transported to the coast via the existing 1,000km Saldanha rail line, and then shipped to the Eastern Cape or taken overland by rail via De Aar. However, this line is plagued by unsuitable gradients and would have to be strengthened to take the greater tonnage. Some concern has been expressed by Iscor itself about the quality of the ore it would supply, but technology suppliers Denver, USA's Iron Carbide Holdings, feel that the problems can be overcome.

Shareholders could include JCI, Sasol and Iscor. Japan's Kawasaki Heavy Industries is looking to undertake the construction of the plant and could also take an equity stake, Cooperation will also be needed from Steinmuller, a German engineering company with a strong South African presence, who hold the local licence for the carbide technology and a history of power plant construction for Sasol. A price tag is yet to be fixed on the project but observers put it at around $500m.

The Eastern Cape steel mill project is an older scheme and is dependent to a certain extent on whether a new harbour in Coega gets the go ahead and government support. However, project promoter Mr Hugh Marx, claims that it could be viable anyway if it were situated at the existing Port Elizabeth harbour.

Should the Northern Cape iron carbide plant fail to become established, iron units could instead be sourced from JCI's Beira project. This mill's output of ultra-thin steel strip is targeted at the rapidly expanding automotive industry in the province, although its presence is also hoped to spur the development of a white goods industry.

While a hot rolling mill is initially planned there are possibilities that a cold rolling mill could be erected to add further value to the output and the mill, which will be supplied by US Tippins, could even be used to "toll roll" carbon and stainless steel slabs on behalf of other producers. While an international investor willing to take a stake in the project is yet to be located, a recent visit to Tokyo by the South African Minister for Trade and Industry, Mr Alec Erwin, and his deputy director, Paul Jourdan, is said to have garnered significant interest. The Industrial Development Corporation (IDC) has guaranteed that it will take a 50% stake should a suitable partner be found, and home grown construction and engineering concern, Murray & Roberts (M & R), is also looking to work together with Mr Hugh Marx in coordinating the project.

M & R's interest was strengthened following the collapse of a rival project it was working on with the US plant equipment maker, Raytheon. Should the mill become successfully established analysts believe it could play a large part in transforming the East London/ Port Elizabeth area into the "Detroit of the southern hemisphere" as it would reduce material costs for the automotive industry, which although small by world standards, is expanding rapidly.