The Department of Trade and Industry says international investors are ready to help establish a new joint venture steel mill in South Africa. Negotiations are likely to be finalised by the second quarter of this year.

But the department says any agreement will contain “strong conditions” to ensure the government controls the project, avoiding the shortcomings associated with the unbundling of state-run Iscor more than a decade ago.

Many in South Africa’s steel space do not see how new players can enter an already saturated market, despite the country’s proposed infrastructure plans. Producers have spare capacity, and imports are flooding in.

However, a recent fire crippled ArcelorMittal South Africa’s Vanderbijlpark facility, the largest supplier of flat steel products in sub-Saharan Africa.

The producer, part of the global ArcelorMittal Group, has provided little information on this, saying it hopes to restart full operations at the end of next month.

Hennie de Clercq, CEO of industry body the Southern African Institute of Steel Construction, says the past year has not been a good one for South Africa’s steel industry. Nearly 1-million tons of steel was imported in the period, which is a record. This will likely be exacerbated by ArcelorMittal’s latest shutdown, following protracted outages at its Newcastle mill in past years.

“Since the imported steel was not cheaper than the local, this implies that slack demand does not explain the woes of the steel producers,” de Clercq says.

“A better explanation is that the production of steel has been erratic and far below the potential. To a large extent this can be attributed to technical problems that were experienced by the mills.”

The Industrial Development Corporation is set to buy Anglo American’s 74% stake in Scaw Metals for R3.4bn, among other steel assets. This is part of government efforts to promote competition in South Africa’s steel industry, and enforce a “developmental” pricing model to help its infrastructure plans.

Meanwhile, a small private steel plant is nearing completion in the Coega industrial development zone near Port Elizabeth. But construction group Murray and Roberts recently struggled to sell its mothballed Cape Town Iron and Steel Works mini-mill, eventually landing a Turkish buyer.

However, these events pale into insignificance compared with some of the hype surrounding the local steel industry. In early 2011, empowerment group Afripalm Resources struck a deal with the state-run Steel Authority of India to conduct a feasibility study for a new R21billion steel plant in South Africa. Since then, nothing has been heard of this and other proposed projects.

Most pertinently, the government’s demands for a more competitive steel price have led to unresolved legal disputes involving the state and private sector. These stem from a failed empowerment deal involving politically connected Imperial Crown Trading and access to iron ore mining rights.