The jury is out on the pricing of South Africa's steel products and developments of downstream players in the industry as the National Employers Association of South Africa (Neasa) takes on conglomerate ArcelorMittal South Africa (Amsa) over enjoying the protection by duties over and above its hold on the market.
Neasa has called for the scrapping of a 10 percent duty, saying last week that duties should be removed, arguing that the steel basket price served no purpose as means were made through the Steel Masterplan.
Neasa said the original agreement between Amsa and the then-Minister of Trade and Industry, Rob Davies, was to supply the steel downstream with a developmental price.
“This meant that Amsa was supposed to, at least, supply the downstream at 10 percent less compared to the import parity pricing level, where the natural protection is forfeited in favour of the downstream.
“This competitive advantage would have enabled the downstream to develop. This never happened and enforcement has proved to be impossible,” Neasa's chief executive Gerhard Papenfus said.
Neasa argues that due to the high shipping cost, Amsa already enjoys “natural protection” of roughly 10 percent with the 10 percent duty to protect Amsa while, the South African steel downstream is at a disadvantage of 20 percent that impedes on the industry's competitiveness and ability to export.
In a response to questions, Amsa said the duty did not affect Amsa pricing, but had the potential to affect import volumes.
The group contended that pricing had been based on the international basket price agreed with the government. In effect the international basket price served as a cap on Amsa pricing and ensured that pricing took into account market dynamics as well as what was required by the customers.
"Factually, through an agreement with the South African government, Amsa's flat products price is capped by an international basket price.
"The capped price is determined by an average of world prices, based on prices in economies which do not subsidise their steel making. China and Russia are therefore excluded because of state sponsorship of their steel industry," Amsa said.
It contended that 135 countries in the world had an average of 10 percent duty on South African steel exports into their countries – an 8.5 percent duty on flat products and an 11 percent on long products – with the four largest steel producing/exporting countries in the world – China, India, Russia and Turkey – all levying import tariffs on South African steel of between 5 to 20 percent.
Amsa said: "ArcelorMittal South Africa's performance against the basket price is strictly monitored by the government and ArcelorMittal South Africa has complied with its obligations in this regard. In fact, for almost the entire year in 2021, ArcelorMittal South Africa's price was significantly lower than the basket price.
“While ArcelorMittal South Africa is the largest producer in the country, DSP (parent company owned by Chinese), Safal Steel and Columbus steel all produce flat steel products in South Africa. Highveld Steel used to be a significant producer of flat steel products, but their owners, Evraz (Russian), did not support them through difficult times and the company went into liquidation in 2014.”
Don Consultancy Group chief economist Chisita Mhango said Neasa's position on the levy outlined the challenges that still faced the Steel Masterplan.
"There is some validity to Neasa's argument as the price of steel sheets the downstream industries are getting from Amsa are quite high to support them.
“However, any scrapping of duties would have to be done in a phased manner. Steel is essential to supply key infrastructure developments. Globally the conflict between Russia and Ukraine has impacted on the supply chains," Mhango said.
BUSINESS REPORT