Is SA’s downstream steel sector finally on the up?
Difficult conditions in the steel industry have put tremendous stresses on the downstream sector. But things may finally be looking up
Warne Rippon, the son of a Grahamstown bakery owner, always knew he wanted to get into "some type of retail". But it was cricket that brought him to Joburg in the early 1990s — a career decision that was not to play out as planned.
He was, he says, "an average sportsman who aspired to be a Springbok cricketer". And so he found himself working for a steel company — another decision that would take an unexpected turn.
Being retrenched in 1993 provided Rippon with the impetus to start his own company. "I had to make a decision: either I start my own business or try to find a job," he says. A year later he founded trading firm Steelrode. "We started with one driver; one truck," he says. "We have had to do things the hard way."
Today, Rippon is executive director of Allied Steelrode — a "serious player in the industry" — formed from the merger of Steelrode and Arun Chadha’s Allied Chemical & Steel. The company employs 400 staff, and its fleet of vehicles includes 30 heavy-duty trucks and trailers. An independent steel merchant and processor, it supplies coils, slit strip, flat steel, steel pressings, standard sheets and cut-to-length blanks to customers in the manufacturing, mining and automotive sectors.
In a bold move, it recently invested R500m in a stretcher leveller facility, allowing it to produce stretched and flattened steel for its customers.
"It was not an easy journey for us," Rippon says.
"But we have managed to grow this business and we are excited for the future."
It’s been a difficult time for the downstream steel industry in SA. The volatile steel price from dominant primary producer ArcelorMittal SA (Amsa) makes it difficult for downstream companies to plan ahead.
We thought the next steel boom would come in 2016/2017. We got it wrong … I think we have hit the bottom and are now starting to move upwardsWarne Rippon
Protectionism in the primary industry has also hit the downstream market. In a move to support the sector, the government increased the general rate of customs on primary steel products to 10% and implemented safeguard measures for three years on hot-rolled coil and plate products. But downstream companies like Allied Steelrode have complained that the duties, while meant to stem the tide of cheap steel imports, have only benefited upstream producers.
A recent Engineering News report notes that the increased duties — in the face of cheaper Chinese production — have made steel more expensive for downstream manufacturers, which then battle to compete against cheaper imports in the downstream market.
A department of trade & industry report to its parliamentary portfolio committee in June notes that manufactured steel product imports were up more than 250% in the 2000-2016 period.
Allied Steelrode has been vocal about the issues facing the downstream sector — and about the quality of steel coming out of Amsa. But the tide seems finally to be turning.
"We are currently seeing the first positive signs for the downstream steel sector, which has been forced to consider a variety of measures such as consolidating operations to diminish overcapacity in an attempt to mitigate the effects of the economic slowdown this year," says Rippon, who acknowledges the "host of macroeconomic challenges" the sector still faces.
The government has also taken additional steps that may aid the downstream sector, for example establishing a R1.5bn steel development fund, and providing tax incentives to boost investment.
What it means
Increased duties have made steel more expensive for local manufacturers, who then battle to compete against cheaper imports
Amsa has also improved the quality of its product, he says. "There appears to have been a seismic shift to a more competitive mindset from the mill, which is looking at the restructuring and upgrading of its processes. In less than two years, the various tariffs on steel are set to fall away and it is encouraging to see ArcelorMittal finally positioning itself more positively with its customers, so it will be able to prosper in a future tariff-free environment."
Not that Allied Steelrode has always called it right. "We believed the SA economy would start improving after the 2008 meltdown," says Rippon. "But [Jacob Zuma’s presidency] let us down. We thought the next steel boom would come in 2016/2017. We got it wrong … I think we have hit the bottom and are now starting to move upwards."
The company is hopeful its R500m investment — secured through 80% bank finance and 20% internal resources — will pay off. The new stretcher leveller can process gauges from 3mm to 12mm in thickness. For now, though, Allied Steelrode is focusing on consolidation.
Says company CEO Chadha: "We had to plough back everything [into the company]. We also did not [pay] any dividends. It was a difficult and expensive journey.
"But today we have a facility that I can proudly say is one of the best in the world."