New capacity is coming online in Nigeria’s steel sector, but the closure of existing factories and high operating costs mean that overall output still significantly lags domestic demand.
In July, locally-owned Aarti Steel Nigeria completed work on a cold-rolled steel mill in Ogun State. The $833 million mill has a nameplate capacity of 120,000 tonnes and will allow the firm to service local demand while exporting its surplus to regional markets such as Cote d’Ivoire and Benin.
Aarti’s investment is one of several capital investments currently underway in the sector. Ogun State-based Standard Metallurgical Company (SMC) is in the midst of a four-phase project to establish an integrated steel wire rod and billet facility in Ogun State. The $380 million first phase was completed in 2015, with a production capacity of 300,000 tonnes of wire rods annually. The second phase, a 260,000 tonnes billet production line, is currently under development.
Rising domestic and export demand is one of the primary reasons for the surge in capital spending. Local steel demand is estimated by the government at 20 million tonnes annually while a number of ambitious public and private infrastructure projects across the region, such as the $5.8 billion Mambilla Hydropower Project in Nigeria, a new $10 billion railway masterplan in Ghana and new port upgrades in Côte d’Ivoire, has prompted a spike in consumption.
However, current output is far below even domestic requirements. The Nigerian Metallurgical Society estimates that the country currently produces between 2.2-2.8 million tonnes of steel products each year, well below South Africa and Egypt, who produce 6.1 million and 5 million tonnes respectively. Nigeria imported around 7.1 million tonnes of steel products last year, stacking up an import bill of $3.3 billion.
The low production levels are in part a result of the poor maintenance. Only eighteen of the country’s 30 established mills are operational, with eleven steel facilities closed this year by the government as a result of
Access to raw inputs is another key constraint for producers. According to the Ministry of Mines and Steel Development, Nigeria holds the twelfth largest iron ore deposits in the world, but more than 70% of its reserves remain undeveloped and there are few immediate plans to do so.
Steel factories also grapple with the same challenges as many of their heavy industry peers, including unreliable power supply. The limited grid electricity in Nigeria means that many producers must rely on diesel generators or independent grids, which can drive up operating costs by more than one-third.
Aarti Steel Nigeria Limited
Aarti Steel Nigeria Limited is an industrial manufacturing company in Nigeria. It offers steel and iron constructions, carbon and alloy steel manufacturing, ferrous alloys, spring steel wire, and other industrial wires. Aarti Steel Nigeria Limited is based in Ota, Nigeria.
Culled from: Asoko Insight