Essential for SA to retain primary steel industry
If lost, it would be expensive and difficult to replace
As former editor of Business Day and the Financial Mail, Peter Bruce should know that it is advisable to talk to a wide range of firms in the steel and steel products industry before writing about a contentious issue, rather than quoting the views of one industrialist, whose views are not representative of the views of business across the industry, upstream and downstream.
I have spent the past year talking to many business leaders and others in the steel and steel products industry as facilitator of the Steel Industry Master Plan for trade, industry & competition minister Ebrahim Patel. By far the majority, both of the upstream industry (who make the primary steel products — plates, coils, bars and so on) and the downstream industry (who process steel and make things from it) believe it is essential for SA to retain a primary steel industry that makes steel from iron ore.
That view is held by the mini mills, steel merchants, the wire industry, rerollers, scrap recyclers and many others. If lost, primary steelmaking capacity would be expensive and difficult to replace and there would probably be an inexorable trend to import further and further up the value chain, leading to more and more deindustrialisation in SA.
SS Profiling CEO Theunis Duvenhage explained his views on February 9 to the Steel Oversight Council (of which he is a member and of which more later); he believes tariffs should be removed on everything upstream and downstream. However, most other industrialists say this would aggravate the loss of jobs, rather than make the industry more competitive. Some allege, for instance, that certain finished products come into SA below the international price of steel scrap.
The price of carbon steel hot-rolled coil from Arcelor-Mittal SA (Amsa) is set according to a basket of international prices, which excludes China and Russia. China’s steel industry enjoys volume efficiencies but also has a range of support measures. Russia is excluded from the safeguard tariff SA imposes on imports. The basket price avoids import parity pricing; in effect, duties and safeguards are not added to the price. This domestic price is periodically reviewed by a steel committee under the auspices of the International Trade Administration Commission (Itac), taking into account representation by members of the downstream industry associations. The dramatic rise in the international steel price has boosted mill earnings, but is likely to be short-lived.
Amsa was required to invest in its plant and equipment, which it has not done adequately. It made money for years, but in recent years has operated at a loss. After the Covid lockdown it has been slow to restart its blast furnaces, which has caused shortages throughout the industry. The safeguard tariff, now 8%, which protects Amsa, has been temporarily extended while Itac and the department consider the findings of its investigation into the effect of extending the safeguard on downstream industries.
The Steel Master Plan, which I have been working on with industry and government stakeholders, recognises that temporary trade and support measures for the upstream and downstream industries are necessary to help the steel industry survive in the short term. Trade distortions in the steel industry internationally have been widely identified and reported on, with many developed and developing countries deploying steep duties and trade remedy tools to protect their industries. However, the trade and support measures in SA have not been effectively applied in many cases and have been extensively undermined.
However, the master plan focuses mainly on how to grow demand, which underlies the serious problems across the industry. Very low demand, especially since the 2010 World Cup, has driven the industry into a crisis. Effective and rapid infrastructure development is important.
To ensure the industry drives the Steel Master Plan, Patel has appointed an interim Steel Oversight Council, which includes a wide range of CEOs from both upstream and downstream steel sectors, together with the leaders of the two big unions, the CEOs of big state-owned enterprises and a small number of senior government officials. The council will drive the implementation of the master plan and monitor its progress. The members of the council are appointed in their personal capacities, as industry leaders, and will be supported by experienced people who will act as project managers to drive the various programmes. The implementation of the master plan will therefore rest with the industry; it will not be dominated by government and will also not be dominated by Amsa.
An important issue that came up in the discussion at the council, and which is dealt with at length in the master plan, is the pricing of carbon steel. The minister has embraced the council’s call for transparency in the basket price. The council will discuss the cost of inputs, especially iron ore, coal, steel scrap, electricity and rail and port logistics. It will also discuss studies of the margins that are taken all long the price chain, from primary producer to retail customer. Competition from a growing number of mini-mills has already pushed the price of long steel commodity products below the import price. At least two SA companies are preparing to also produce flat steel. However, blast furnaces are expensive and the barriers to entry in that part of steel production are therefore high.
Though much of the industry has been in crisis for many years, parts of the industry are doing well domestically and in exports. There is excess capacity in the wire industry, but the more capable companies are working to full capacity and have invested in new plant, technology and jobs. The stainless steel industry is also strong. Columbus Stainless Steel, the country’s primary producer, exports 80% of its production but has undertaken to work with the Steel Oversight Council and the department to strengthen the downstream use of stainless steel.
It won’t be easy, but the enthusiasm shown by everyone at the council meeting boded well for a difficult but feasible recovery in the industry. This cautious optimism is a far cry from the narrow pessimism of Bruce’s piece.
• Dr Fanaroff is ministerial facilitator of the department of trade, industry & competition's Steel Master Plan.
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