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Cablegate: Columbus Stainless Steel and Asme Nuclear Standards

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TO RUEHC/SECSTATE WASHDC 6255
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

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TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB SF
SUBJECT: COLUMBUS STAINLESS STEEL AND ASME NUCLEAR STANDARDS
WORKSHOP

1. (SBU) SUMMARY: The U.S. Embassy supported the American Society
of Mechanical Engineers (ASME) Nuclear Codes and Standards Workshop
in Johannesburg, which successfully promoted Westinghouse's bid for
significant new nuclear build in South Africa (septel). Delegates
visited Columbus Stainless Ltd., Africa's only stainless steel
production plant and an aspiring supplier to the potential South
African and global nuclear industry, on October 9. Columbus is a
fully-integrated, high-tech plant developed by Spanish stainless
steel giant Acerinox S.A. The plant is currently operating at 30-40
percent of capacity due to global financial turmoil and the drop-off
of export orders, particularly from China and Asia. End Summary.

--------------------------------------------
ASME Workshop on Nuclear Codes and Standards
--------------------------------------------

2. (SBU) Columbus Stainless Ltd. is Africa's only stainless steel
plant and is one of three plants owned and operated by Spanish
stainless steel giant Acerinox S.A. Minerals and Energy Specialist
toured the Columbus plant in Middelburg, Mpumalanga as the final day
of the ASME Nuclear Codes and Standards Workshop held in
Johannesburg on October 7-9, 2008 (septel). The program was a
cooperative initiative promoted by U.S.-based ASME (American Society
of Mechanical Engineers) and the Johannesburg-based U.S. Commercial
Service in support of Westinghouse's bid for new nuclear build and
the potential localization and globalization of the South African
nuclear industry.

3. (SBU) The SAG plans to construct an ambitious 20,000 MW of new
nuclear power capacity over the next 20 years. The initial tender
is for 3,000 MW, representing two-three individual reactors. The
larger fleet is intended to comprise a mix of conventional
pressurized water reactor (PWR) plants and locally-developed Pebble
Bed Modular Reactor plants of 165 MW each. The ASME workshop was
co-sponsored by Westinghouse and Areva of France, which are the two
preferential bidders for the supply and construction of the
conventional PWRs.

4. (SBU) Some 400 delegates from South Africa's supplier and
services industries attended the ASME workshop, showing strong
interest from potential nuclear suppliers in adopting ASME
standards. ASME is a U.S.-based, independent organization that sets
globally-recognized performance, testing, safety and numerous other
codes and standards for engineering structures and products. ASME
also provides testing services that enable products manufactured and
built under local or other international codes and standards to be
certified compliant with ASME standards and codes. The workshop
covered most aspects of ASME's work and the requirements for
potential certification of South Africa's Pebble Bed Modular Reactor
power plant now under development, plus products used in a nuclear
plant that may be exported.

----------------------
Global Stainless Steel
----------------------

5. (SBU) The global long-term growth rate for stainless steel has
averaged more than 6 percent per year, equivalent to 1.7 million
Qaveraged more than 6 percent per year, equivalent to 1.7 million
tons of new steel each year. Production for 2008 is estimated to be
28-29 million tons. Global production and South African exports of
stainless steel in millions of tons are:


Production
Country 2008(6-mths) 2007 2006
W Europe 4.862 8.669 9.972
C-E Europe 194 364 363
Americas 1.357 2.604 2.951
Asia 8.344 16.200 15.074
Total 14.776 27.836 28.359

South African Exports
Total Asia W Europe NAFTA
2007 506,000 220,000 132,000 92,000
2006 515,000 175,000 218,000 73,000

PRETORIA 00002402 002 OF 004

6. (SBU) Stainless steel represents a family of chromium and
nickel-containing alloys that are corrosion-resistant and retain
tensile strength at high temperatures. These alloys contain at
least 11 percent chromium, which forms a chrome-oxide layer on the
metal that makes stainless steel corrosion resistant. This metal
surface layer regenerates itself if damaged as long as oxygen is
available. The stainless steel family comprises four main branches
and Columbus Stainless manufactures the two most commonly used
types, namely ferritic and austenitic steels. Ferritic steels
contain 12-18 percent chromium, while the austenitic steels have an
additional 8-10 percent nickel. Some steels also have titanium,
molybdenum, and other elements added in minor quantities to enhance
properties such as resistance to pitting corrosion and
stress-corrosion cracking.

----------------------------------------
Columbus Stainless - Africa's Lone Plant
----------------------------------------

7. (SBU) Columbus Stainless is a technologically advanced, fully
integrated operation, situated in Middleburg in Mpumalanga Province.
Columbus began life as a South African-owned, ferro-chrome smelter
and was converted into a stainless steel plant in 1966. Spanish
stainless steel giant Acerinox bought a 64 percent share in 2002 and
increased this to 76 percent in 2005. Other shareholders are the
state-owned Industrial Development Corporation (IDC) and private
company Samancor, each with 12 percent. Acerinox has spent about
$310 million since 2002 to expand and upgrade Columbus' cold-rolling
facilities. It also has plants in Spain and Kentucky (U.S.) and
produces some 10-11 percent of global stainless steel. Columbus
Stainless was catapulted into the major league of stainless steel
producers by Spanish company Acerinox S.A.'s take-over of the
company. Acerinox invested $310 million to introduce new technology
and skills into Columbus and to expand its capacity to produce
world-quality, higher-valued, cold-rolled steel. Columbus
Management says that Columbus' productivity and steel quality is
slightly below that of the Kentucky plant, but ahead of the Spanish
mother plant, and still improving.

8. (SBU) Stainless steel offers unique properties needed in nuclear
plants for piping and tubing in heat exchangers and for containers
for the long-term storage of spent nuclear fuel and other highly
radioactive materials. Columbus intends to tender for the supply of
stainless steel materials and components for the nuclear facilities.
It also seeks to have its products compliant with ASME codes and
standards in order to market to the international nuclear industry.

9. (SBU) Columbus has the capacity to produce 1 million tons of
stainless steel per year, but would require additional capital and a
20-30 MW furnace to reach this production level. Implementation
depends on demand growth and the availability of power. Columbus
has a maximum cold-rolling capacity of 600,000 tons of value-added
stainless steel and 150,000 tons of hot-rolled steel plate, both
Qstainless steel and 150,000 tons of hot-rolled steel plate, both
subject to demand. Final cold-rolled products include coil
(5.8-0.25 millimeters thick) and sheets in various lengths and
widths. A lower-value hot-rolled product is also produced as sheet,
slab, or coil according to customer specifications. Exports account
for 80 percent of production. Feed for the smelter consists mainly
of some 600,000 tons of carbon-steel scrap, 250-300,000 tons of
ferro-chrome supplied by the neighboring Samancor plant, and
50-70,000 tons of nickel ingots supplied locally and from imports.

--------------------------------------------- ------
Impact of the Global Downturn on Columbus Stainless
--------------------------------------------- ------

10. (SBU) Columbus' output has declined to 30-40 percent of
capacity since August. China was a major purchaser of stainless
steel from Columbus prior to the Olympic Games, but has since not
placed an order. Columbus only produces on order and is therefore
immediately affected by any downturn in economic activity.
Discussions with management indicate that this cut in output is not
the worst that the company has seen over its history and no layoffs
are anticipated. Management states that Columbus has not retrenched

PRETORIA 00002402 003 OF 004


staff in the last ten years, if ever. The price of benchmark "304"
stainless steel has dropped from $5,500 to $3,500 per ton over the
last three months. Nickel's price has dropped from $55,000 to
$13,000 per ton during the same period. At its peak price, nickel
accounted for 70-80 percent of Columbus' production costs. Much of
the nickel is purchased on consignment and is costed using the LME
price when consumed. The current commodity downturn is expected to
be short as China (and Asia) is likely to return to the market
within the next few months. Prices for stainless steel have fallen
by some 36 percent, but Columbus is still profitable. The 60-70
percent volume decline is a concern, and Columbus is looking to
increase penetration into Africa and to increase sales into the
nuclear industry.

---------------------------
The Stainless Steel Process
---------------------------

11. (SBU) Columbus management presented details of the stainless
steel process. Normal carbon steel scrap is melted in an electric
arc furnace (EAF) with measured quantities of ferro-chrome and
nickel, plus other "ingredients" as required to match the
specification of the stainless steel product ordered. The molten
metal is refined and cast into slabs of 900 mm to 1,600 mm wide and
200 mm thick, and then cut into lengths of between 4 and 12 metres.
The slabs are hot-rolled at about 1,250 degrees Celsius to the
desired thickness and then either coiled (black coil) or cut into
plate (black plate). Each coil weighs between 20 and 30 tons and
the steel thickness can be between 8.0 mm and 3.0 mm. Plate
thickness ranges between 65.0 mm and 3.0 mm. After a clean-up
treatment, these products can be sold or cold-rolled to produce a
higher-value product. Cold rolling and finishing takes place on a
heavy gauge cold mill to produce a smooth, shiny-finished, stainless
steel. The thickness range of the cold-rolled product is between
5.8 mm and 0.25 mm. The steel may be further treated to produce a
brighter, flat surface or a bright, permanent finish. The coils can
then be cut and polished as required by the customer.


--------------------------------------------- ----
Opportunities for Stainless Steel in South Africa
--------------------------------------------- ----

12. (SBU) Columbus management have identified specific growth areas
within the South African market to grow the company's sales. These
include:

-- the stadiums for the 2010 FIFA World Cup, where stadiums are
being built from scratch and are steel-intensive;

-- the rapid-rail (Gautrain) mass transit project as a significant
user of stainless steel, plus other rail and rolling stock
expansions;

-- the power sector, where Eskom has a massive program to build new
generation capacity, including two or three 4,800 MW coal-fired
plants and new nuclear plants;

-- the resource sector where new mines, plants, smelters and
refineries are being established or planned, both in South Africa
and elsewhere in Africa; and

-- the manufacturing sector, including vehicle exhaust systems and
Q-- the manufacturing sector, including vehicle exhaust systems and
catalytic converters (currently at 15 percent of the global market)
and bulk tank containers (which account for about 50 percent of the
world's output.)

13. (SBU) Columbus is an eager potential supplier to the nuclear
industry and graciously stepped up to offer a tour for delegates of
the ASME Nuclear Codes and Standards Workshop. This provided
delegates an opportunity to observe challenges and opportunities in
bringing South African industry up to ASME standards for the nuclear
industry. Columbus is not there yet, but they are making the effort
and embraced the spirit of the ASME event.


PRETORIA 00002402 004 OF 004


LALIME

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