SA eyes region’s building and mining sectors for exports of steel products
The government has adopted a multipronged strategy to aid the beleaguered domestic steel industry, which is facing strong headwinds in the form of global overcapacity, damaging imports and, more recently, US tariffs on steel and aluminium products.
Preservation of local steel production is seen as essential as it is fundamental to manufacturing in SA and employs 190,000 people in the direct iron-ore, steel-making and fabrication industries.
One key focus of the Department of Trade and Industry in its assistance to the industry is to encourage it to upgrade, innovate and produce higher value-added steel products for export into the regional construction and mining sector.
This would help the industry move towards a more sustainable path in the current situation of excess capacity, two departmental officials said in a presentation they made to Parliament’s trade and industry committee on Tuesday on the status of the steel industry.
Africa’s steel demand is gaining momentum, with growth in sub-Saharan Africa projected at 4% by 2025. Of the 39-million tons of steel used by African countries annually, only 13.7-million tons are supplied by the region.
Chief director Thandi Phele and acting chief director Umeesha Naidoo told MPs that the effects of the global steel crisis were evident across the value chain in SA, from mining to primary steel mills to domestic manufacturers, which were struggling to compete, sustain jobs and invest. Low economic growth had resulted in slow growth in steel demand.
"SA’s steel industry has been in constant decline since 2010," Phele said.
"Apart from weak demand, a major cause of the decline is cheap steel imports, which adversely affect the profitability and capacity utilisation rates of the domestic steel producers, aggravated over the years due to the situation of global excess capacity and falling domestic primary steel production competitiveness."
Total imports of manufactured steel products increased by more than 250% between 2000 and 2016.
Imports from China increased from 12% of total steel imports in 2000 to 54% in 2016.
At the same time, local demand has shrunk by about 10% since 2007 and steel use in the region has stagnated. Two-thirds of regional demand is supplied by imports.
Among the measures taken by the government to support the domestic steel industry have been the increase in the general rate of customs duty on primary steel products; tariff increases; a pricing agreement with primary producers; local procurement by the government; the establishment of a R1.5bn steel development fund to support key downstream steel sectors; and investment support through tax incentives.
The South African Revenue Service is also developing a reference price system for downstream products to address low-priced imports.
Naidoo said the government continued to engage with the US government about SA’s failure to gain exemption from the tariffs imposed by President Donald Trump on steel and aluminium imports.
The government would raise the issue again at the Agoa forum taking place in July in Washington DC.
Phele did not anticipate any early improvement in the global oversupply of steel. Current plant utilisation has been below 80% for the past few years and 45-million tons of new capacity would come on stream by 2020, with a further 37-million tons in the planning stages, mainly in India, Vietnam and the Middle East.
"Many developing countries and regions have similar views on industry growth and increasing steel capacities for domestic consumption subject to demand," Phele said.
DA trade and industry spokesman Dean Macpherson was very critical of government support measures for the industry, which he said were heavily skewed in favour of primary producers - particularly ArcelorMittal SA - at the expense of downstream manufacturers, which had not benefited from any pricing agreement.