The industry uses scrap metal and factories and is sometimes forced to import of scrap metal from neighbouring countries to meet demand.
Recent reports shows that between 2007-2012, the demand of billets (the raw material for producing iron) by the steel manufacturing industries has been between 600,000 and 700,000 tonnes equal to the smelting of 750,000 and 910,000 tonnes of scrap each year.
Better known as direct-reduced iron, sponge iron is got from iron ore. The ore is often in the form of pellets or lumps. The pellets are compressed getting rid of the gas found in them. The development and commercialisation of sponge iron arose in late 50's when the steel manufacturing industries in the world were faced with the problem of limited metal scrap.
With the need for more sponge iron the Maganga Matitu project in Ludewa district in Iringa region is working on increasing their production capacity. The project is a joint venture between M.M.I Steel Mills Limited and the National Development Corporation (NDC). The joint venture was signed in 2009 and is valid for the next 100 years and at least 50 million tonnes of iron ore have so far been discovered.
The project will be in full swing by 2014 and will make Tanzania the first nation to produce sponge iron in East and Central Africa.
The Project Manager Laurance Manyama says the sponge iron would be produced from iron ore from Maganga Matitu and coal from Katewaka.
With sponge iron in abundance, Mr Manyama says more iron can be produced and exported to the neighbouring countries giving an example of hot-roll coils, cold coils and flat bars which are currently imported. "We will be able to produce other iron products which can not be produced from scrap," he said.
He says the Maganga Matitu project will apply the latest environmental friendly technologies that will tap gas and heat from the production process and generate power. According to Mr Manyama, 48 megawatts of electricity are expected to be produced from the same project where 10 megawatts will be used in iron smelting and the remaining 38 megawatts will be added to the national grid to allow residents of Ludewa District access sustainable power supply.
He says that in December last year, 54 holes 10,850 metres and 10.5 kilometres deep were drilled while at Katewaka 28 holes with 4,700 metres and 15 kilometres were drilled. The Minister for Industry and Trade, Dr Cyril Chami during an official visit to M.M.I Steels Mills Limited last month said that the sponge iron project was the biggest local investment ever and its implementation was so far highly impressive.
"This project has made great strides since its implementation started and Tanzanians should expect a lot of benefits from it," he noted. He said the project would benefit many people especially Ludewa residents who have been involved in its development from the beginning and would advance economic activities at the area due to improvements infrastructure and social services.
The Minister urged the investor to carry out an environmental and social impact assessment before implementation of the project to avoid conflicts with residents in the area. The Managing Director, Mr Subhash Patel, of M.M.I Steels Ltd said about US$12m has so far been spent on the pre-implementation stage of the project including exploration and infrastructural improvement at the project area.
He listed some of the challenges faced so far include poor infrastructure, boundary conflicts as well as poor social services, citing the example of the existence of only one petrol station that was set up late last year. Mr Patel called for the government's support in making the project successful through the improvement of infrastructure and settling of boundary conflicts to enable the smooth implementation of the project.
"The company has constructed 150 kilometres of roads and evaluation of the property is ready. The survey report on the quality of minerals done by PB Company of UK is also ready," he said. Through this project, 3000 Tanzanians will get direct employment while more than 8,000 others will be indirectly hired with only a few expatriates who will train locals.
The investor has given each ward a block bricking machine so that residents may sell blocks to the factory. The project so far has given iron sheets to 22 schools in Ludewa and funded the construction of maternity ward. A Ludewa resident Ignas Mwinuka says Ludewa residents had heard of the investment for years. They are now hoping for more changes within the area.
Studies show that the consumption of iron in the country is still very low in the ratio of one person to less than a kilogramme while in the developed countries it is rationed 500-650 kgs per person annually with only a total of 20m tonnes of iron consumption in the SADC countries.
The production of sponge iron will attract other local and foreign investors in using the direct-reduced iron and finally extend the mining sector contribution to the GDP which is currently at 2.3 per cent and projected to account 10 per cent in Development Vision 2025.