Introduction (00:00–01:30)
Welcome back to SteelOnTheNet Podcasts. I'm Dr Andrzej M Kotas, and today is 2nd March 2026.
Today's episode is about failure. Specifically, four of the most instructive investment disasters in the history of the global steel industry.
Now, I want to be clear about why this matters. The steel industry is a capital-intensive business. Decisions made about plant investment lock in cost structures, competitive positions, and balance sheets for decades. Getting these decisions wrong — spectacularly wrong — doesn't just destroy shareholder value. It sets back entire national industries, damages investor confidence, and in some cases, leaves behind rusting monuments to poor planning that outlast the people who made the original decisions.
The four cases we're examining today span four continents and five decades. They involve different technologies, different ownership structures, and different political contexts. But they share a common thread: the gap between ambition and execution. Between what was promised and what was delivered.
We'll look at Ajaokuta Steel in Nigeria, the Al Tuwairqi DRI plant in Pakistan, British Steel's Hunterston plant in Scotland, and Perwaja Steel in Malaysia.
Let's start in Nigeria.
Ajaokuta Steel, Nigeria (01:30–05:30)
Ajaokuta is probably the most famous failed steel project in history. Located in Kogi State on the banks of the Niger River, it was conceived in the 1970s as the centrepiece of Nigeria's industrialisation programme. The vision was ambitious: a fully integrated steel complex that would produce 1.3 million tonnes of steel per year, eventually scaling to 5.2 million tonnes. It would use iron ore mined domestically at Itakpe, transported via a dedicated new railway to the plant, and then onwards to the port at Warri.
Construction began in 1979, designed and built by Soviet firm Tyazhpromexport under a cooperation agreement between Nigeria and the USSR. The complex was enormous — 24,000 hectares, 43 individual plants, including blast furnaces, coke ovens, rolling mills, and all the supporting infrastructure. Former President Shehu Shagari laid the foundation stone in 1980.
Total investment over the decades is estimated at between eight and fourteen billion US dollars, depending on the source — one of the largest industrial investments ever made on the African continent. A dedicated standard gauge railway was also contracted in 1987 to link the iron ore mines at Itakpe to Ajaokuta and onwards to Warri. By the early 1990s, 98 percent of the physical construction was reportedly complete.
Here is the extraordinary fact at the heart of the Ajaokuta story: despite all of that construction, all of that money, and four-plus decades of effort — the blast furnace has never produced a single tonne of commercial steel.
The Soviet collapse in 1991 removed the primary technical partner mid-project. The railway link was never fully completed; portions that were built were subsequently vandalised. The Itakpe iron ore beneficiation plant, needed to process ore to blast furnace quality, remained non-functional. Equipment installed in the 1980s sat idle for years, deteriorating and being stripped.
Multiple privatisation attempts followed. Global Steel Holdings won a concession in the 2000s but the arrangement was later terminated amid disputes over the terms of investment. The government paid approximately $496 million to settle related disputes and reclaim control. As of today, Ajaokuta remains largely dormant. Estimates suggest two to five billion dollars more would be needed just to revitalise the existing facilities — if revival is even technically feasible given decades of neglect.
Ajaokuta teaches us that scale and political will are not substitutes for execution capability. Nigeria lacked the institutional infrastructure — logistics, governance, regulatory consistency — to execute a project of this complexity. When the external technical partner disappeared with the Soviet Union, there was no domestic capability to continue. And critically, the supporting infrastructure — the railway, the ore beneficiation plant — should have preceded the steelworks, not been developed in parallel or after. Without raw material supply, even a completed blast furnace is useless.
Al Tuwairqi DRI Plant, Pakistan (05:30–09:00)
Our second case moves to Pakistan in the 2010s. The Al Tuwairqi Group is a Saudi-based steel conglomerate with operations across the Middle East. Their Pakistani venture — Tuwairqi Steel Mills Limited, or TSML — was a greenfield DRI plant at Port Qasim near Karachi, developed as a joint venture with South Korean firm POSCO using the world-leading MIDREX direct reduction technology. Capacity was 1.28 million tonnes per year of DRI — a world-class scale facility.
The broader ambition was substantial: this was planned as Phase One of a fully integrated steel complex. Phases Two and Three would add a melting shop, billet production, and eventually backward linkages to iron ore mining in Balochistan. Total investment across all phases was envisaged at over one billion US dollars.
Phase One — the DRI plant alone — cost approximately $342 million. It was inaugurated in January 2013.
The plant produced 60,300 tonnes of DRI and then shut down. In September 2013 — less than nine months after opening — operations ceased. The company sustained an operational loss of $18.6 million in that single year. The plant has remained largely mothballed since.
What went wrong? Not the technology. MIDREX is the world's most widely deployed DRI technology. Not the location — Port Qasim is a functional deep-water port with good logistics. The failure was almost entirely about gas pricing.
The MIDREX process requires large volumes of natural gas — both as fuel and as the reducing agent that converts iron ore to DRI. When TSML was planning the project, assurances were given — or reasonably understood to have been given — that gas would be supplied at a concessionary tariff competitive with other DRI-producing regions. Pakistan's Economic Coordination Committee ultimately refused to honour this, citing the cost of subsidies and the absence of a legally binding commitment. Without cheap gas, the economics collapsed. The plant was simply producing DRI at a higher cost than the market price.
What followed was years of legal arbitration between Al Tuwairqi and the Pakistani government at the Permanent Court of Arbitration in The Hague — a process that continued long after the plant stopped producing.
This case is almost a perfect case study in the risks of policy-dependent investment. The entire business model rested on one input cost assumption — the price of gas. That assumption was not locked into an enforceable contract before $342 million was spent. The government could change its position, and it did.
For investors evaluating projects in markets where input costs depend on regulatory decisions, the lesson is stark: if your economic model depends on a government concession, you need that concession in writing, legally binding, before you commit capital. And for host governments, the lesson is equally clear. Failing to honour reasonable investor expectations — whether contractually binding or not — destroys future investment flows. Pakistan's steel ambitions suffered a major setback, and the reputational damage extended well beyond this single project.
British Steel Hunterston DRI Plant, UK (09:00–12:30)
Our third case takes us to Scotland in the 1970s. The context is British Steel Corporation — the nationalised entity created in 1967 when the UK steel industry was brought into state ownership. BSC was a massive enterprise, producing tens of millions of tonnes across dozens of plants. But by the mid-1970s, it was under enormous pressure: demand was collapsing, costs were too high, and international competition was intensifying.
Against this backdrop, BSC made a bold strategic decision. They would develop a Direct Reduced Iron plant at Hunterston in Ayrshire — adjacent to a purpose-built deep-water ore terminal that could handle the largest bulk carriers then afloat. The vision was to import low-cost iron ore, produce DRI using domestic coal as the reductant, and supply UK electric arc furnaces with a higher-grade alternative to scrap.
Capital investment was approximately £180 to £200 million in 1970s money — the equivalent of well over a billion pounds today. The technology chosen was the SL/RN rotary kiln process — a coal-based direct reduction route developed by a consortium of steel and engineering companies. At that time, it was seen as appropriate for a country with coal resources but without the cheap natural gas that the rival MIDREX process required.
The plant never achieved sustained commercial operation. Technical problems were persistent and severe. The rotary kiln suffered from ring formation — a phenomenon where accretions build up inside the kiln, disrupting material flow and heat transfer. Refractory wear was excessive. The product quality was inconsistent. The plant repeatedly shut down for repairs and modifications, never reaching its nameplate capacity.
And the market was moving against it simultaneously. After the 1973 oil crisis, UK steel demand collapsed. By the time BSC was fighting for its institutional survival in the early 1980s — with Ian MacGregor presiding over mass plant closures and a confrontation with the unions — Hunterston had become an embarrassment. The plant effectively ceased operations by the early 1980s having consumed enormous capital with little commercial return.
In an almost poignant postscript, the equipment was eventually dismantled and shipped to Mobile, Alabama in 1997, where it was incorporated into the Trico Steel consortium's operations. The technology found a second life in America that it never achieved in Scotland.
Hunterston is primarily a technology risk story. The SL/RN rotary kiln process, at that scale, was not ready for full commercial deployment. BSC scaled up a technology that had not been sufficiently de-risked at pilot scale. This is a mistake the steel industry has made repeatedly across different technologies and different eras: the pressure to act — whether from policy imperatives, competitive anxiety, or political momentum — drives decisions to commercialise before adequate proof of concept.
The second lesson is about timing. Hunterston was conceived in a period of optimism about steel demand and then executed into a demand collapse. Large capital projects have long lead times. The world can change dramatically between investment decision and commissioning. Scenario planning and genuine stress-testing of market assumptions are not optional — they are essential.
Perwaja Steel, Malaysia (12:30–15:30)
Our fourth case is Perwaja Steel in Malaysia — a project with a different character from the others. Perwaja was established in 1982 as part of Prime Minister Mahathir's "Look East" policy — a deliberate national strategy to drive Malaysian industrialisation by learning from and partnering with Japan and South Korea. The initial joint venture brought in Nippon Steel as technology partner. The facility at Kemaman in Terengganu was to produce direct reduced iron and billets, supplying Malaysia's construction and manufacturing sectors.
Initial construction cost was approximately 1.2 billion Malaysian ringgit — financed through government loans and the joint venture structure. Over subsequent decades, additional capital injections, restructuring costs, and accumulated debt swelled the total financial exposure to well over RM 10 billion — several billion US dollars at contemporary exchange rates. The company was eventually listed on Bursa Malaysia in an IPO that raised RM 367 million in 2008 — just before the global financial crisis hit.
Perwaja's history spans three decades of persistent loss-making, scandal, restructuring, and ultimate collapse. Production problems emerged almost immediately. The original DRI technology — using Nippon Steel's HYL process — struggled in the Malaysian operating environment. Nippon Steel exited in 1987, leaving the government as majority owner with a loss-making plant.
A second plant was subsequently built using MIDREX technology, also at Kemaman. The intent was to improve competitiveness. But costs remained stubbornly high, and the product was more expensive than imported alternatives.
The corporate governance story became infamous. Eric Chia, brought in as Managing Director by Mahathir himself to rescue the operation, became the subject of a high-profile legal case in 2004 involving allegations of financial irregularities. He was acquitted, but the episode became one of the most politically charged corporate controversies in Malaysian history. Total losses by this point were estimated at RM 2.5 to 10 billion depending on the measure used.
Operations finally ceased in October 2013 when electricity and gas supplies were cut off due to unpaid bills of RM 176 million to the power company TNB and RM 275 million to Petronas. The company subsequently entered receivership. A 2017 attempt to bring in Chinese investment failed. The plant was eventually taken over in 2022 by JXR Manufacturing, a subsidiary of China's Jianlong Group, with ambitions to restart operations.
Perwaja illustrates what happens when political prestige substitutes for commercial discipline. The project was conceived as a national statement, which made it extremely difficult to take hard decisions when early losses materialised. Throwing good money after bad was politically easier than admitting failure. Perwaja's difficulties were structural and long-standing, predating any individual's involvement. When large state-backed projects lack independent oversight, the conditions for mismanagement are created.
Conclusions (15:30–18:00)
So what do these four cases — separated by continents, decades, and political contexts — tell us collectively?
First: technology risk is real and must be managed before capital is committed. Hunterston deployed an immature rotary kiln technology at scale. Perwaja's initial DRI technology struggled in local conditions. In both cases, the decision to proceed was driven by strategic ambition rather than a cold assessment of technical readiness.
The lesson is not to avoid new technologies — the steel industry must innovate. The lesson is to de-risk technology progressively: pilot plants, demonstration units, reference installations elsewhere. Don't commit billion-dollar capital to technologies that haven't proven themselves commercially at scale.
Second: energy and input cost assumptions are the foundation of DRI economics — and they must be locked in, not assumed. Three of our four cases involved direct reduction technology. DRI is exquisitely sensitive to the cost of energy — gas in the case of MIDREX and HYL, coal in the case of SL/RN. Al Tuwairqi in Pakistan collapsed entirely because a gas price assumption proved unfounded. Perwaja struggled for decades partly because Malaysian energy costs weren't as competitive as the Gulf region where DRI economics are most compelling. When you are evaluating a DRI investment, the energy cost structure is not a supporting assumption — it is the central question.
Third: policy certainty and government commitments must be contractually secured. Al Tuwairqi is the clearest example, but Ajaokuta demonstrates the same risk from a different angle. In Pakistan, implied government assurances on gas pricing were not legally binding. When the political calculus changed, the assurances evaporated. $342 million had already been spent. Investors — and the governments that want to attract them — need to understand that policy-dependent projects require enforceable agreements, not gentlemen's handshakes.
Fourth: supporting infrastructure must precede or accompany investment in production facilities. Ajaokuta's blast furnace was built before the railway that would bring it iron ore was completed. The iron ore beneficiation plant needed to make Nigerian ore suitable for the blast furnace was never made operational. You cannot run a steel complex without raw materials and logistics.
This sounds elementary. But the pressure to show progress on the glamorous, visible production facility often leads to critical infrastructure being deprioritised. The result is a plant that is physically complete but operationally paralysed.
Fifth: governance and institutional quality are not soft factors — they are hard determinants of project success. Perwaja and Ajaokuta both suffered from the combination of state ownership, political patronage, and weak accountability that creates fertile ground for mismanagement and fraud. When a project becomes too politically important to fail, it becomes too politically difficult to manage honestly. Independent governance, transparent financial controls, and genuine accountability mechanisms are not bureaucratic overhead — they are what stands between a viable project and a multi-billion dollar catastrophe.
And the sixth and final lesson: understand the difference between what a country wants and what it can execute. All four of these projects were expressions of national industrial ambition.
- Nigeria wanted to be a steel producer.
- Pakistan wanted to be a DRI producer.
- Malaysia wanted to be a modern industrial economy.
- The UK wanted to modernise its steel sector.
None of these ambitions was unreasonable. But ambition must be matched by institutional capability, financial discipline, and a realistic assessment of competitive position. Wanting to build a world-class steel plant is not the same as being able to operate one profitably.
The steel industry will always need large capital investments. The question is whether those investments are grounded in rigorous analysis or in wishful thinking. The four cases we've examined today were, in different ways, expressions of wishful thinking dressed up as strategy.
The graveyards of the steel industry are full of projects that looked compelling on paper. The survivors are those that were designed around commercial reality, not political vision.
Until next time, this is Dr Andrzej M Kotas reminding you that in steel, the most expensive mistakes are the ones that should have been obvious before a single tonne of concrete was poured.
Thanks for listening.
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