Some context will be useful before we get into the meat of the matter.
You may have heard, sometime in October or November last year, about the steel giant ArcelorMittal’s decision to close a steel plant in Florange, France. The closure was going to lead to the loss of around 700 jobs. ‘Zut Alors!’ cried the French industry minister, Monsieur Arnaud Montebourg who practically insulted Mittal and told them to leave the country.
The French minister is not stupid but he is a politician looking for votes so it is important to discount what he says and look at the real reason why the plant needed to be closed. Since the beginning of civilization human beings have managed to extract around 40 billion tonnes of iron ore from the ground. Half of this amount has been extracted since 1990 suggesting that we are getting really good at digging up the stuff from the ground. But something else has also happened at the same time. I am coming to this shortly.
Stage 1 of this process involves turning iron ore into steel i.e. ingots. Stage 2 is where these ingots are then turned into what we need like steel sheets to make cars and other things. How does Stage 1 work? Well you need to have a blast furnace that heats up the iron ore to something like 2000 degree Centigrade or thereabouts to turn the iron ore into ingots. As you can imagine, it is energy intensive and rather costly. For Stage 2 you simply use a steel rolling mill to turn the ingots into steel. This technology is pretty standard and hasn’t really changed in a long time.
So what has happened that I alluded to above? Well because we have already extracted so much iron ore from the ground, by extension we have so much steel in various forms – cars, building materials etc. Concern for the environment is also now a very big deal everywhere. These 2 factors now mean that recycling of existing steel is a BIG industry. The implication of this is that Stage 1 which I described above is becoming more and more redundant in the process of steel making i.e. we don’t really need to dig up so much iron ore anymore and then melt it into ingots in a blast furnace. This point is incredibly important. Technology has changed and continues to change to the point where the old way of doing things is now very expensive and uncompetitive.
Back to France. What type of plant is the Florange one that ArcelorMittal was trying to shut down? You guessed it – it’s a blast furnace.
See this quote from The Economist (emphasis mine)
Like many other steelmakers in an industry plagued with overcapacity, ArcelorMittal is hurting. It wants to close two uneconomic blast furnaces at Florange in Lorraine and concentrate its French steelmaking at its coastal sites at Dunkirk, on the English Channel, and Fos-Sur-Mer, on the Mediterranean. But it wants to keep its rolling mills at Florange
This is a business at the end of the day and there really is no point in keeping a blast furnace when you can get the same steel to feed into a rolling mill from scrap cars and such like.
So what has provoked this article I am writing? I saw something in the papers today from a couple of days ago and I was alarmed by the ignorance. It seems Nigeria is in the process of once again ‘reviving’ the Ajaokuta Steel Company (ASCO). The Guardian interviewed a ‘top management official’ of ASCO who unsurprisingly sought anonymity. Here is his ignorance in all its glory (emphasis again mine)
This has been the stand of the World Bank/IMF and their imperialistic agents against the (ASCO) project. They earlier advised us in 2001 to turn the entire steel plant into a power generation plant as in the Hatch Associates report. We were equally advised at a certain time by Kobe Steel in the guise of an investor to demolish the blast furnace plant to enable them to install a fast-melt facility in another location in the steel plant. This was vehemently and wisely rejected by the Presidency at that time
Goodness Gracious, Great Balls of Fire. The man is so convinced of his ignorance that he is certain that the recommendation of the World Bank and IMF is an ‘imperialistic’ one. Who is this President that ‘wisely’ rejected this decision at the time? Isn’t it amazing how ignorance can hold us back so much especially by people who are so dead certain of what they are doing they couldn’t possibly be wrong? Of course it is the white man who does not want anything good for us! Note that the consultants from Kobe Steel advised us to install a fast melt facility which is essentially a way of recycling steel i.e. bringing us up to speed with the world. But No! We don’t want that one!
At the time ASCO was conceived, the idea of a blast furnace possibly made sense. But like everything else, we messed up and delayed for so long on it that time and technology have since left us behind. Where is this going to take us? Well from the same article we get this
Vision 20:2020 economic blueprint as approved by the Federal Executive Council clearly recommended that the nation shall produce 12.2 million tonnes of steel per annum by the year 2020 out of which Ajaokuta steel plant is to produce 5.2 million tones/annum
Just like the bone headed policies that got us into the cement palaver we are currently in, we are about to embark on another adventure that will produce nothing other than expensive steel which no one will buy. As I’ve stated previously, the trouble with Dangote, Lafarge and other made in Nigeria cement is mainly that they don’t add anything new to the production of cement. They simply cannot make it cheaper. The world was never waiting for us to make cement just like they are not waiting for us to make steel. However the world will be interested in us if we can make cheaper cement or steel. This a crucial distinction. (You can do some research on an American company called Nucor which perfected the technology for recycling steel and has been a pioneer in the move away from blast furnace technology).
Once the government has committed its billions to reviving ASCO as it is, the next step will then be to – drum roll – ban importation of steel to ‘protect our nascent’ steel industry. A great deal of surprise will then be expressed when the total number of countries willing to buy our expensive steel comes to zero. Even more alarm will be expressed at the smuggling of steel into Nigeria and the perpetrators of this unpatriotic act will be decried and flayed.
Let’s not forget a lot of educated analysts who will make the case for protectionism to boost our industrial base. These arguments will be made with a lot of intelligence (and zero amount of wisdom) on the pages of Business Day and across the interwebs. The arguments will be made with so much big English that some of these analysts might unwittingly sexually arouse themselves and wet their pants as they ‘protect’ our industry. At no point will the actual underlying issues be addressed. In short we are going to attempt to drive this car of economic development with the handbrake on.
My question to you is this – do we really need ‘imperialistic’ enemies when we are capable of doing so much damage to ourselves with our ignorance?
Keep an eye on this story.