Category | Steel

The story of Saldanha Works

The Cape’s steel plant contributes to a more diverse economy in South Africa

Saldanha Works plays a flagship role as a steel producer and exporter. It employs 580 staff and a similar number of contract workers, the vast majority of whom live in the local area. Approximately 1,000 additional jobs have been created indirectly, through the services required to keep the steel mill running.

The plant exports the majority of its products, supporting South Africa’s minerals beneficiation strategy by converting raw iron ore into a semi-finished product, thereby contributing to economic prosperity and creating jobs on the west coast.

“As part of [the unbundling] transaction, the steel company agreed to take on ZAR5.8bn of the debt at the Saldanha plant”

Partner companies

Apart from its annual consumption of 1.5 million tonnes of iron ore, Saldanha Works uses 675,000 tonnes of coal, 400,000 tonnes of fluxes and ZAR500m worth of utilities – all of which is supplied by South African companies.

Other major partners include Transnet Freight Rail and the Port of Saldanha. Total expenditure on engineering-related items and services is ZAR250m a year, and involves more than 250 companies in the Western Cape.

Saldanha was designed to produce up to 1.25 million tonnes of hot-rolled coil a year, and up to 10 per cent is used directly in the local market by tube and profile manufacturers, service centres and as a feedstock for cold rolling. Approximately a third – 30-35 per cent – is sold to Duferco Steel Processing (DSP).

A joint venture company between Belgian steel trading company Duferco and Industrial Development Corporation (IDC), the state-owned development finance institution, DSP produces cold-rolled and galvanised steel from its factory next door to the Saldanha plant.

Without access to ArcelorMittal South Africa’s low-cost semi-finished steel products, companies such as DSP would struggle to compete globally, because of the higher cost of importing steel from overseas.

The remainder – around two-thirds – of Saldanha’s steel is exported as hot-rolled coil, mostly for use in the pipe industry, primarily to East and West Africa.

History

Construction of the Saldanha plant began in February 1996, as a joint venture between IDC and Iscor, the then state-owned steel producer, which also had large iron ore and coal operations. The plant produced its first steel in June 1998, using iron ore supplied to Saldanha at preferential prices. When the plant was commissioned, the business model was built on Saldanha having access to low-cost iron ore. Had access to low-cost iron ore not been possible, Saldanha would probably not have been built.

“The Saldanha plant’s direct steel exports, and its support for local downstream industries, demonstrate its importance in contributing to a more diverse economy in South Africa”

But it was not until 2005 and after some design changes that it was able to operate efficiently at full capacity. Saldanha was built with the intention of exporting 100 per cent of its steel – a first in the world at the time. Several locations for the plant were considered, for example Maputo, Richards Bay, Port Elizabeth and Sishen. But the logistics of exporting hot-rolled coil, made Saldanha the site of choice.

In 2001, Iscor was unbundled into separate mining and steel companies. As part of this transaction, it was agreed that the mining company (Kumba Iron Ore, now part of Anglo American) would supply the steel company (now part of ArcelorMittal) with iron ore at cost plus 3 per cent. In return, the steel company assumed an additional ZAR2.8bn of the  pre-unbundled Iscor debt.

The Saldanha plant’s direct steel exports, and its support for local downstream industries, demonstrate its importance in contributing to a more diverse economy in South Africa.