Updated public–private partnership (PPP) regulations have reshaped the framework within which South Africa’s steel industry operates and they are expected to increase steel demand across infrastructure sectors, says steel body Steel and Engineering Industries Federation of Southern Africa CEO Tafadzwa Chibanguza.

He says the reforms affect scale, speed and risk.

“What these regulations have essentially done is [to] . . . allow for unsolicited bids on certain infrastructure that must be built. This helps [to] progress projects that are not necessarily front and centre for government, as they can be developed in a decentralised manner, countrywide. That talks to the scale. Essentially, you could have infrastructure projects . . . across the country on a decentralised basis.”

The regulations also change how projects are processed, with a distinction made between projects below R2-billion and larger developments.

“In the instance of small, [or] sub-R2-billion, projects, this is sometimes all that a local municipality needs to upgrade its water infrastructure facilities,” he posits.

Requirements on these smaller projects have been eased, reducing compliance obligations before and after project development.

Risk has also been addressed, with a credit guarantee vehicle and contingent liability regulations forming part of the updated framework. Consequently, “the hurdle rates of projects” are lower, which, in turn, is more attractive to more risk-averse private capital.

Chibanguza adds that construction and steel-intensive infrastructure uses, on average, about 35% to 40% of steel globally.

“Therefore, with these mechanisms that unlock PPP projects that typically have that level of steel intensity, you really have a game-changer on steel demand,” he says.

Sector Demand

Chibanguza notes that there could be substantial demand for steel from all infrastructure sectors, but that the strongest demand will probably be from the energy, rail and water sectors.

He regards energy as a major driver, citing the planned build of 14 000 km of transmission lines, which has knock-on effects across the entire metals and engineering sector, including transformers, electrical cable, substation structures and steel tower structures.

Stronger demand will also come from rail, as it requires steel for the repair and expansion of tracks, as well as rolling stock, he notes.

Meanwhile, there has been immense deterioration in the quality of water and wastewater infrastructure, and there is a dire need to expand and repair existing infrastructure. Therefore, steel demand will be bolstered, owing to demand for piping and rebar used in these projects.

The under-utilised capacity in the sector, while an unfortunate outcome of weak demand, presents an opportunity for local companies to meet this increased demand, by simply filling up existing installed production capacity before they run into capacity expansion constraints.

“In the electrical cable sector, they are operating at 43% to 45% capacity utilisation,” he says, while steel producers are operating at just over 50% capacity utilisation. He notes that optimal levels are about 85%.

Their operating below capacity would mean that if additional demand was shifted towards all these companies, “it’s a simple fact of increasing your supply up to your capacity utilisation”.

This can be done with little to no additional investment.

Policy, Constraints

Chibanguza says South Africa is, in many instances, “world renowned” in terms of its capabilities in steel production and heavy engineering.

However, existing policy “still needs work” to move the steel industry forward, and while progress has been made in strengthening the PPP regulatory environment, legislative shortcomings remain.

He raises the issue of how government projects are structured.

“If demand is issued as a single turnkey project, local firms may struggle to meet the full scope,” he explains, suggesting that projects be packaged into smaller components to align with existing domestic capacity.

Chibanguza emphasises that the main constraints do not pertain to skills or factory capacity, but to the regulatory environment, procurement processes and how projects are approved and rolled out.

“It’s really the external ecosystem that needs to be repaired,” Chibanguza concludes.