Big projects drive China steel demand

Steel imports from China have doubled in the last five years driven by East Africa’s big infrastructure projects.

The surge in imports has led to a demand for 180m length ships from 120m length ships to facilitate the extra tonnage.

In the 2014/2015 financial year the value of imported iron and steel rose 16.7 per cent to Sh88 billion due to projects such as the Lamu Port-South Sudan-Ethiopia-Transport, Lake Turkana Wind Power Project and the expansion of Nairobi’s Outer Ring Road, as well as the Standard Gauge Railway (SGR), according to the 2016 Economic Survey by the Kenya National Bureau of Standards. (KNBS).

But steel imports for construction have required adaptability, in a situation of volatility in volumes shipped in.

In 2016, for instance, KNBS reported that imports of steel and iron dropped by 5.7 per cent to 1,442,600 tonnes on the near-completion of phase one of the SGR, which had been a major import driver in preceding years. However, other construction projects have since led to renewed demand for steel.

These projects include phase two construction of the SGR from Nairobi to Naivasha, the South Sudan to Kenya tighway road link, and the construction of the Upper Hill–Mbagathi link road.

There are also major construction projects set to begin this year and span the next five years. These include the Sh75.8 billion Kenya-Tanzania highway, the Sh62 billion Lamu-Garissa-Isiolo road, the Sh3 billion Ngong Road dualling, the Sh35 billion phase two expansion of the Mombasa port and the Sh302.6 billion construction of the Nairobi-Mombasa expressway.

The key projects are set to maintain the expansion in steel imports being experienced by freight companies such as Multiple Solutions Limited.

“We have been experiencing an influx of steel imports from China since 2013, the onset of the construction of the SGR. But despite the phase one completion last year we are still importing 20,000 tonnes of steel, which is double what we used to import before,” said John Orwa, Service Delivery Manager at Multiple Solutions Limited.

In order to accommodate the increase, Multiple Solutions Limited has been forced to hire bigger ships. For 20,000 tonnes of steel, the company is using a 180m length ship, which costs $80,000 to hire, spending 33 per cent more than for the 120m length ship used initially, which cost $60,000.

Its agents from China send the manifest on how much tonnage they are expecting, which the freight company then sends to the Kenya Ports Authority (KPA) and the Kenya Revenue Authority.

The increase in steel imports means the Kenya Ports Authority (KPA) has had to ensure enough manpower to facilitate the timely offloading of cargo to prevent port congestion.

“A ship takes at least three days to unload, but basically when you have less cargo, then the manpower is also minimal. However, when the cargo size surges, there is need to increase the labour in order to ensure that cargo is unloaded on a timely basis. KPA ensures that the required manpower is available once the ship arrives,” said Mr Orwa.

READ: Kenyan steel firm earns Sh400m from SGR supplies

All the ships whose destination is the Mombasa port must inform the KPA 14 days in advance of the ship’s arrival in order to facilitate the handling of the cargo.

The allocation of manpower resources then works on a first-come-first-serve basis, with the KPA preparing for a ship’s docking on the notified day. The space is allocated to another ship if the first-booked vessel does not arrive on that day.

As carriers deploy larger ships in order to meet the demand of certain products, the volume of the cargo can run the risk of overwhelming port authorities, challenging their ability to unload containers on a timely basis, research has found.

A study by global shipping consultancy firm Drewry, on the operational impacts on major ports as vessel size increases, found that while larger ships reduce voyage costs, they increase the demands on major gateway ports, such as the manning levels, to effectively handle increased peak cargo volumes.

However, handling the larger ship sizes may be a long-term requirement for the Mombasa port.

The continued development of mixed-use real estate projects such as Pinnacle Towers and Montave, is also driving the demand of steel, and analysts forecast that the port, which is a major trade gateway to East Africa, will continue to experience elevated levels of steel imports from China in coming years.

A 2015 report by the Economist titled It’s a STEEL!’ that analysed China’s strategy in its over-production of steel, predicted that Africa’s demand will reach three million tonnes per year by 2050, with Beijing’s cheap pricing of its steel attracting countries that are involved in large infrastructure projects.

“China produces more than 820m tonnes of steel per year, of which about 100m tonnes are exported and sold at a discount overseas. China brought online 552m tonnes of extra capacity between 2007 and 2015, and produces half the world’s steel,” reported a Financial Times special report on the US steel industry.

- African Laughter