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Cablegate: Tata Kzn - a Steel Producer That Aims to Be Stainless

VZCZCXRO6093
RR RUEHBZ RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDU #0121/01 3620612
ZNR UUUUU ZZH
R 280612Z DEC 09
FM AMCONSUL DURBAN
TO RUEHC/SECSTATE WASHDC 1537
INFO RUEHBI/AMCONSUL MUMBAI 0001
RUEHCI/AMCONSUL KOLKATA 0001
RUEHSA/AMEMBASSY PRETORIA 0714
RUEHNE/AMEMBASSY NEW DELHI 0006
RUEHZO/AFRICAN UNION COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHDU/AMCONSUL DURBAN 0919

UNCLAS SECTION 01 OF 03 DURBAN 000121

SENSITIVE
SIPDIS

FOR AF/S, ISN, EEB/ESC AND CBA, AND OES/EGC
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER
DOC FOR ITA/DIEMOND

E.O. 12958: N/A
TAGS: EMIN ENRG EPET EINV ETRD ECON SENV SF
SUBJECT: TATA KZN - A STEEL PRODUCER THAT AIMS TO BE STAINLESS

REF: A) 05 DURBAN 00019; B) 09 PRETORIA 2498

DURBAN 00000121 001.2 OF 003


This message is sensitive but unclassified, not for Internet
distribution.

1. (U) Embassy Minerals and Energy Officer and Specialist,
Consul General, and Consulate Pol/Econ Officer visited charge
chrome manufacturer Tata Steel in Richards Bay, KwaZulu-Natal
(KZN) on November 16. This cable is a collaboration between
Embassy Pretoria and Consulate Durban.

2. (SBU) SUMMARY: Tata Steel KwaZulu-Natal (TSKZN) is a
comparatively small, new producer of export charge chrome for
use in stainless steel manufacture. Set up in Richards Bay by
holding company Tata Steel to take advantage of cheap power and
competitive freight rates, TSKZN brings in ferrochrome ore by
rail from Mpumalanga and imports Ohio-sourced coking coal for
its smelting process. The "niche" producer has been forced to
find innovative ways of processing low quality ferrochrome,
customizing its smelter and briquetting unwanted chrome dust, to
remain competitive during the 2008-2009 global recession. The
experienced management team demonstrates a very high level of
commitment to reducing the facility's environmental footprint,
assisting affected communities, and empowering women. Under the
leadership of Somdeb Banerjee, the team provides a good example
of local success in overcoming tough challenges. End Summary.

Tata Chooses Richards Bay for Cheap Power

3. (SBU) Tata Steel, the world's sixth largest steel producer,
decided to establish the Tata Steel KwaZulu-Natal (TSKZN) charge
chrome plant in 2000 to avoid the increasing cost of power at
its Indian operations. At the time its power bills were 50
percent of its processing cost. The site at Richards Bay, South
Africa's deepest port, was chosen for its cheap power and
competitive freight rates. The company was formed in 2003 as a
subsidiary of Tata Steel and Tata Africa Holdings and R850
million ($114 million) was invested to establish the processing
plant. The plant is in its second year of operation and is
headed by Managing Director, Somdeb Banerjee, with a team of 136
employees. It produces and exports about 150,000 tons per annum
of high quality charge chrome, a high carbon ferrochrome used in
the production of stainless steel.

Key Ingredient in Stainless Steel

4. (SBU) Charge chrome is a key "ingredient" in stainless
steel, making it rust resistant and adding shine and luster.
Stainless steel is primarily a "lifestyle" product entering
households as elegant cutlery, tableware and decorative items.
Consumption for stainless steel has grown at around 4.5 percent
over the last few years.

Ferrochrome to Charge Chrome

5. (SBU) TSKZN smelts ferrochrome ore to produce an export
charge chrome product that is shipped to Asian and European
customers from the Richards Bay port. The operation comprises a
ferrochrome ore storage facility for two to three months'
production, a briquetting plant, two DC-arc furnaces and a slag
plant. The furnaces were commissioned in April and July 2008,
respectively, and the first shipment of charge chrome to
customers in China was made in September 2008. The furnaces
smelt ferrochrome ore using coking coal ("coke", imported from
Ohio Coal Mining in the U.S.) as a reductant and a small amount
of quartzite as a flux. Smelting at 1600 degrees Celsius
produces a charge chrome matte which is tapped, cast, and
crushed to produce the charge chrome product for export; and a
lighter alumina-silicate slag, which is cast, crushed, and
stockpiled for use in road building. TSKZN is capable of
processing lower grade ferrochrome ores than its competitors.
The company purchases low grade, "lumpy" ore (from Nkomati Mine
at Machadodorp in Mpumalanga), which it feeds directly into the
furnaces, and "fines" (ferrochrome dust) which it forms into
briquettes prior to smelting. The briquetting plant can process
400,000 tons of "fines" forming a furnace feed of 200mm
briquettes using molasses and lime as a binder.

Green Chrome

6. (SBU) TSKZN expressed commitment to its environmental

DURBAN 00000121 002.2 OF 003


responsibilities and is active in reducing emissions,
maintaining ground water quality, and striving for zero waste.
TSKZN plans to reduce emissions, in line with Tata Steel's 2012
target, from 1.8 to 1.5 tons CO2 per ton of liquid steel. "We
ensured that our environmental standards would meet the emission
norms and air quality standards likely to be required in the
next five years," says Banerjee. Fugitive emissions, the highly
toxic gas that escapes the furnace when matte or slag is tapped,
is extracted and filtered in a closed system. The filtrate is
bagged and sent to a hazardous waste disposal site. Ground
water quality and potential pollution plumes are monitored
through a series of boreholes drilled at the perimeter of the
operations. The company ensures that all of its plant water is
either contained in lined storage facilities or kept in closed
circuit. The most hazardous waste product in the plant water,
"Chrome VI" (or hexavalent chrome, which is a highly toxic human
carcinogen), is neutralized in the closed circuit through the
addition of ferrous sulphate. According to Banerjee, the
management team continuously looks for uses and recycling
opportunities for the plant's waste products and aims to achieve
zero waste generation. They are also active with a "greening
project" aimed at suppressing dust and improving indigenous
bio-diversity.

Challenges and Innovation

7. (SBU) Key challenges of the cost of power, input transport
costs, recession-delayed return on investment (ROE), and
attracting and retaining skills, particularly historically
disadvantaged South Africans (HDSA) at management level, are
forcing TSKZN to innovate for survival. Power accounts for
about 30 percent of process costs with ferrochrome smelters
being energy intensive. With impending 35 percent per annum for
three years electricity rate hikes, the operations team is
working on the cogeneration of power from emissions flares and
the recycling of all process heat. They estimate that this will
enable a 15 and 20 percent reduction in their power bill. The
transport cost of ferrochrome ore from mines in the North West
and Mpumalanga is currently more than the price of the ore. To
reduce these costs the operations team has started to process
low quality ore and "fines" (chrome dust) from mines that are
closer to Richards Bay. The team is looking at using locally
produced anthracite as a substitute for U.S. coke, but as yet
has not been able to replace this input. Proximity to the sea
is an attraction and retainer for the highly skilled and
management level employees, but the company has lost skilled
employees to the Australian mining industry and to local
competitors in the Middelberg area. Mentorship and a
significant investment into the training of selected local
candidates as artisans are key strategies employed by TSKZN to
build its required skills base. Since 2006, TSKZN has trained
91 young men and women as operators and apprentices, some of
whom are currently employed as trainees in the plant.

Good Vision, Resilient Team

8. (SBU) TSKZN appears to have good leadership in Banerjee, a
highly competent and experienced operations management team, and
a strong vision. Of its 136 employees, more than 50 percent are
HDSA and 30 percent are female. TSKZN planned to facilitate
voluntary HIV/AIDS testing in December 2009 and estimates the
prevalence to be far lower than the region's 25 to 30 percent.

Community Conscience

9. (U) TSKZN is deeply involved with the community at Richards
Bay, investing in education, skills development, and the
empowerment of women. The company does not directly invest in
HIV/AIDS, believing that other cooperatives in the area are
better equipped to tackle this issue. The Embassy/Consulate
team visited one of three schools that TSKZN had adopted and
renovated in the area.

Comment

10. (SBU) TSKZN is an example of a "niche" ferrochrome producer
that relies on innovation, highly experienced operations
management, and good leadership to create value and compete with
better placed, larger producers.


DURBAN 00000121 003.2 OF 003


11. (SBU) The timing of the TSKZN project was most unfortunate,
with the first consignment of processed charge chrome being
shipped at the start of the 2008-2009 global recession,
seriously reducing payback on its $114 million investment. This
initial setback appears to have created a sense of urgency and
"can do" positivism in the company's management team, stimulated
a cost-conscious culture, and triggered excellent leadership.
DERDERIANJ

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