Magazine article African Business

Starting from Scrap-Creating Angola's Steel Industry: A New Plant in Angola Will Recycle Weapons from the Country's Civil War in a Bid to Compete in a Tough Global Steel Environment

Magazine article African Business

Starting from Scrap-Creating Angola's Steel Industry: A New Plant in Angola Will Recycle Weapons from the Country's Civil War in a Bid to Compete in a Tough Global Steel Environment

Article excerpt

Left to rust in open fields and disused barracks, Angola's stock of decommissioned weapons stand as a stark reminder of the bloody civil war that gripped the country for 27 years.

Thirteen years after a peace deal that still holds, a new $300111 plant is beginning the task of converting the deadly armaments into rebar steel for use in Angola's gleaming new developments.

Yet the plant's innovative use of war scrap is intended as more than a symbol of the country's enduring peace, and is at the heart of an ambitious plan to capture a domestic and regional export market amid the turbulent backdrop of a global steel industry in crisis.

"We must use the resources to create value-added products and be able to export. The main focus is to be able to supply (Angola's) own market. This mill has come at the right time," says Georges Choucair, chairman and chief executive of K2L Capital, owner of ADA Steel. That sort of confidence is rare in an industry which has lurched from crisis to crisis in recent years. China's economic woes and a wider global slowdown have prompted a dearth in demand for the metal as major construction projects are delayed or cancelled.

Global steel production in the first eight months of 2015 was down 1.4% on the same period in the previous year, according to metals consultancy FastMarkets. Meanwhile, China, the world's major exporter, has proved reluctant to end a global glut by turning off mills which provide local government with much-needed revenue and employment.

All of which points to an environment hardly conducive to the opening of a new mill in an African continent struggling with its own growth prospects. Yet Choucair points to a raff of advantages that he says will help ADA's mill succeed in a difficult environment.

"We have something that Europe doesn't have, that's a low cost of energy and a low cost of scrap, and plenty of it. So we have advantages to produce steel in Angola and not to import. Our studies show that we will be competitive against importation," he says.

Those plentiful reserves of scrap--which include weapons, disused rail infrastructure and materials from the country's vast oil industry--could last three years. Two years from now, ADA hopes to begin producing steel from local sources of iron ore.

Choucair says that the firm will target a promising regional export market, with DR Congo, Congo-Brazzaville and Zambia all within reaching distance of Angola and expected to require vast amounts of steel as their economies develop.

John Kovacs, senior commodities economist at Capital Economics, says that the fundamentals of Africa's development appear to support the emergence of domestic production.

"Africa as a whole accounts for only a small proportion of global steel demand--just 2.4%. There is scope for this proportion to increase as industrialisation takes hold, with the steel intensive investment that would require. At the same time, Africa accounts for just 1% of global production," he says.

Yet he cautions that short-term factors, in particular global overcapacity, make this emergence far less likely in the short term. …

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