LETTER: SA iron and steel exports to the EU under threat

SA exports are at risk after the EU introduced the Carbon Border Adjustment Mechanism (CBAM), coupled with EU steel quotas as well as Transnet’s ever-deteriorating capacity in rail and ports.

The CBAM is a tax for carbon-intensive products imported into the EU that has been deployed as a strategy to achieve the bloc’s 2050 carbon emissions goal. It will affect SA’s carbon-intensive exports, including iron and steel, aluminium and cement.  

A transitional period will apply from October, and CBAM will come into force in 2026. In the meantime, the burden will be administrative rather than financial as importers will only report direct greenhouse gas emissions embedded in their imports. 

SA will likely face this tax, as the country’s heavy reliance on coal-based power generation makes it one of the largest carbon-intensive exporters to the EU. This will reduce the value of the nation’s future exports and affect the country’s competitiveness. Last year R7.5bn of R30bn worth of iron and steel-finished product exports from SA (25.4%) were destined for the EU. 

Over and above the tax, firms would incur administrative and compliance costs linked to verification and reporting of emissions, further eroding competitiveness. The EU also administers a quota of steel imports eligible for tariff-free trade from 3% to just 4% of annual demand. Once this quota has been reached, a 25% tariff on steel from third-party countries, including SA, is applicable. 

SA’s iron and steel finished product exports have faced several difficult months, with 2023 not starting well. We imported more than we exported at the start of 2023 and recorded a preliminary trade balance deficit of R191m in January. According to SA Revenue Service trade statistics, the deficit was due to a significant drop in exports at R1.8bn, a marked year-on-year decline from January 2022’s R3.2bn. 

A notable decline was also recorded in exports to the EU, from R1.48bn in January 2022 to R125m in January 2023. Though there is only one month of data available for 2023, the preliminary data showing a decline in exports is a definite cause for concern. We expect the weak performance on the export market to worsen as ongoing structural and logistical problems continue to affect sales negatively. 

Being able to export locally produced steel and fabricated steel products is beneficial to the country and complimentary to our raw material exports. Exporting an equivalent of 1-million tonnes of beneficiated steel products could add more than R12bn to the SA economy as well as creating direct and indirect jobs and generating tax revenues for government.

However, these external factors place an even greater demand on steel manufacturers to ensure they are operating at the most competitive costs in an environment where local challenges, such as the rail and energy crises, are compounding the effect of an already depressed local market. 

Charles Dednam

SA Iron & Steel Institute

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