LUDOVICO SANGES: End import duties on hot rolled coil to be beneficiated for local market

The Steel Industry Master Plan was signed on June 11 with the laudable aim of revitalising SA’s ailing downstream steel industry, which turns “raw” steel into products. The concept of a master plan has considerable merit, especially when it comes to saving a critical strategic industry, but important issues need to be resolved to make it a success.

Duferco, which represents a substantial R4.7bn investment in the local industry by its international parent and the Industrial Development Corporation (IDC), is ready and willing to play its role in refining the plan. Key issues that must be resolved include the following:

Localisation

The Steel Industry Master Plan rightly emphasises the local industry as a key driver of job creation and strengthening the country’s ability to re-industrialise and compete globally. But the definition of localisation is unclear and, on the face of it, might mean only products that are manufactured, cast and poured in SA would qualify as local. This would be detrimental to the success of the plan, because it would exclude a company such as Duferco, which currently has to rely on imported raw material (hot rolled coil), which it then beneficiates.

Duferco is forced to import the hot rolled coil because ArcelorMittal SA (Amsa) is the only local supplier, and Duferco has been unable to come to an amicable agreement with Amsa, which remains an unreliable supplier plagued by delays and supply problems. We would strongly argue that the extensive beneficiation of the imported hot rolled coil we undertake should be more than enough to qualify as localisation.

Another challenge we face is that imported hot rolled coil that is beneficiated and then marketed on the local market continues to attract punitive duties designed to protect Amsa. This makes our product uncompetitive in the local market. By contrast, the hot rolled coil we import, beneficiate and then export attracts no duties, and we are highly competitive in international markets. It makes no sense that duties prevent this competitive, high-quality product from being  available on the local market.

Here is an example of the kind of multiplier benefit a competitive downstream steel market could have on the overall economy. Recently, thanks to the technical skills we were able to access from our international parent company, Duferco was able to produce automotive-graded material for sale to both the local and international markets. The local automotive industry is another strategic investment for the country and providing it with another source of basic material would strengthen it enormously — automotive manufacturers have suffered from material shortages recently, and another supplier would reduce the risk inherent in a single supplier. Duferco is already listed as an approved supplier for two of the major original equipment manufacturers active in the SA automotive market.

A final point: if we are serious about revitalising the local steel industry we need to find a way to reopen the Saldanha Steel facility as quickly as possible. The original thinking — to create a steel hub in an area that desperately needed jobs — remains as valid as ever, and to mothball the country’s most modern steel plant is counterproductive; it is difficult to believe that this huge investment, approved by the IDC and Iscor, was so wrong that only 20 years after start-up the new owner was obliged to shut it down. Duferco was created and sited close to Saldanha Steel to create a local ecosystem, and represents an enormous investment by our overseas parent and the IDC — an investment that should be protected.

Duferco continues to invest in its plant, with R116m recently spent on a number of projects. Our continuing investment in people also continues, and to date 124 people have benefited from our operator training and artisans programme, as well our bursary programme for tertiary education. Thirty-four of them have been offered permanent positions in our own facility.

Our recommendations are to scrap import duties on hot rolled coil that will be beneficiated here for the local market to ensure a more stable, competitive local market; and to find a way to reopen Saldanha Steel as a matter of urgency.

Export-driven growth

Another important pillar of the Steel Master Plan is the creation of a strong export market for SA steel products, with a focus on African markets. On the face of it, this is a good idea because the local market is rather small — expanding it will potentially set in motion a virtuous cycle as local producers are able to ramp up production and gain economies of scale. But again, this plan is set up to fail because of the reliance of SA downstream steel manufacturers on expensive Amsa steel.

Of course, the companies we would be competing with for the African markets would be unhampered by the tariff protection afforded to Amsa, and could source their steel from wherever made best commercial sense; our downstream industry needs the same flexibility to be a credible competitor in African markets. We need international export growth and should be protecting the few current true SA international players.

According to the department of trade, industry and competition, the downstream steel industry employs about 200,000 workers, and its biggest customers (the mining, construction and automotive sectors) contribute R600bn to SA’s GDP (about 15%) and employ 8-million workers. With the right regulatory frameworks in place it could employ more, and also provide the stimulus for the economic growth that is clearly our only chance for salvation. For growth, companies such as Duferco need less regulation to remain a valuable domestic player.

Putting in place a master plan to rescue the industry is a step in the right direction, but it needs some refining to ensure it really does work. Duferco is ready and willing to do its part — but on condition that it is able to procure raw material at a competitive price from the international market.

• Sanges is Duferco MD.