A Chinese worker cuts a steel pipe at an iron and steel plant in China on June 19, 2010. Kenya has 258 registered steel and metal products manufacturers. Photo/AFP
Kenya is set for talks with the world’s second-largest steel maker as it steps up the search for a strategic partner to help put up a plant at Sh13 billion.
A team of officials led by the permanent secretary in the Ministry of Industrialisation, Prof Karanja Kibicho, is scheduled for talks with the management of South Korean firm Pohang Iron and Steel Company (POSCO) this weekend, raising hope for domestic production of the key construction and manufacturing material.
“The team will try to secure collaboration in three main areas. These include manufacturing of spare parts, setting up of a mini steel mill, and an integrated steel mill,” the ministry said in a statement on Wednesday.
“Preliminary exploration by the Department of Mines and Geology has established that the country has sufficient quantities of iron ore, coal, and limestone to sustain the development of steel manufacturing.”
Investment opportunities
Kenya has large quantities of iron and steel in regions such Kitui, Taita Taveta, Homa Bay, and Kakamega that could be exploited for commercial purposes.
Sources at the Industrialisation ministry said the government plans to set up a plant with an annual capacity of 350,000 tonnes of steel as part of a strategy to help satisfy local and regional demand.
POSCO is currently pursuing such investment opportunities in other developing countries such as Vietnam and Mexico.
“The development of a vibrant iron and steel industry in the country will save foreign exchange, create tens of thousands of jobs, and make Kenya self reliant in iron and steel products,” Prof Kibicho said.
Government estimates show that the country spends about Sh60billion each year on importing iron and steel products to service local demand.
The annual import bill is, however, likely to swell following increased demand for metal commodities by fast rising industrial economies such as China and India.
Analysts said the latest earthquake disaster in Japan is expected to add pressure on steel and iron prices as the Asian nation takes on reconstruction projects.
International Monetary Fund (IMF) data shows that metal prices have stayed on the climb since 2008 when the world witnessed a financial crunch.
Metals posted the second largest price rebound after petroleum among all commodity groups in 2009.
The sharp price rebound was largely driven by the stronger-than-expected recovery of emerging economies, with supply factors also playing a supportive role.
On the demand side, although metal consumption declined in most economies in 2009, Chinese demand grew by about 24 per cent, reflecting the effect of China’s stimulus package and public investment.
The rising price of such key import products as steel and iron have a direct impact on the economies of purchasing nations such as Kenya through the phenomenon of imported inflation.
Statistics by the Trade ministry show that metals and steel products are currently Kenya’s largest manufactured goods exported within the Common Market for Eastern and Southern Africa (Comesa) and East Africa Community (EAC) regions.
The country has 258 registered steel and metal products manufacturers who export an average 122,000 metric tonnes of metal and steel products valued at over Sh4 billion annually.
This leaves local users of steel and metal products with too little to share.
“Due to the high consumption of steel in the country and the region, the creation of an iron and steel industry in Kenya will contribute to the enhancement of economic progress,” Prof Kibicho said.
Arranged financing
Several manufacturers in Kenya are already keen on tapping into steel demand in the region.
One of the firms, Devki Steel Mills, expects to spend Sh36 billion in a three-phase project that will see the construction of a steel plant with capacity to process one million tonnes of the commodity using both local and imported iron ore.
Devki, which currently produces 250,000 tonnes of steel, said it had arranged financing with Standard Chartered Bank and hopes to conclude the project by 2014.
The company plans to put up the steel processing plant on a 300 acre land in Taita region and hopes to source 60 per cent of its iron from South Africa and 40 per cent locally.
Devki plans to extract iron from different mines in Kenya, where resources are estimated at 50 million tonnes.
