Big South African steel producers, including ArcelorMittal SA (Amsa), Columbus Stainless, Unica, and Cape Gate among others, are struggling “to keep the lights on” and have called on the government to fix “supply chain constraints” and to foster a balanced trade policy framework to breathe life into the industry.
The closure of Amsa’s long steel manufacturing businesses in 2023 has epitomised the challenges the South African steel industry is undergoing. The government has moved in to control imports of some steel products by imposing import duties starting last month, but the bigger producers are still constrained.
The South African Iron and Steel Institute (SAISI), whose membership includes the big steel manufacturers and some associate members, has said that despite the sector supporting 290 000 jobs in the country, it is struggling to stay afloat. The South African steel industry is a key cog for the country’s economy.
Lufuno Maliaga, principal analyst for SAISI, told “Business Report”: “The South African steel value chain plays a critical role in mineral beneficiation, quadruples the economic value of South Africa’s iron ore and is a crucial enabler of essential parts of the economy such as the automotive, mining, construction, energy, and infrastructure sectors.”
The steel sector was also a “key priority for the government and the broader labour movement due to its ability to generate and multiply job opportunities and earn export revenue”, but was facing multiple threats that could tip players in the industry downwards.
“Threats (for the steel sector) include our inability to keep the lights on, our decaying infrastructure, lack of infrastructure spend by government, the container terminals at our ports being costly and inefficient, the deepening fiscal crisis and rising levels of lawlessness,” said Maliaga.
The industry was battling “circumvention of tariffs and mis-declaration of goods”, while the South African education system’s “inability to produce adequate numbers of skilled workers” was also weighing down the steel sector.
With an installed capacity of 10 million tons, local demand has also sagged in recent years. SAISI data shows that current demand is below 5 million tons.
An influx of imports is also making the situation worse, prompting Amsa and Safal Steel to file an application for “an increase in the general rate of customs duty” on certain coated or plated flat-rolled steel with the International Trade Administration Commission.
The new import duties were implemented in December after the commission concluded the “the strategic nature of the steel industry” to South Africa, the global excess capacity of steel making and “an anomaly in the tariff structure as the locally manufactured steel attracts 10% duty while imported products are free” of duty.
“Steel demand dropped by about a third compared to two decades ago, whilst imports more than doubled over the same period. At the same time export volume declined significantly. The continuing decline in steel demand impacts the overall cost of production. However, the current situation provided opportunities for rationalisation and higher level of diversification.
“The continuing decline in steel demand impacts the overall cost of production. However, the current situation provided opportunities for rationalisation and higher level of diversification,” added Maliaga.
Tami Didiza, a spokesperson for Amsa, said this week that the company was “currently undertaking intensive and delicate engagements” with “government and other key” stakeholders.
Despite the depressed state of the South African steel industry, opportunities for local manufacturers include a growing population and the need to build infrastructure in the continent. With key infrastructure gaps in South Africa, including bridges, schools, hospitals, malls and housing among others, local players could benefit from the expected surge in demand.
Maliaga said the big steel players were supportive of import duties levied on imports of some steel products, saying the duties were crucial “in levelling the trading environment, especially against unfair trade practices such as dumping and price undercutting” by some players.
“Evidence from a number of investigations conducted by international trade administration commission has confirmed dumping into South Africa, in particular from east Asian countries. These cover both the downstream and upstream products.”
Some of the import duties recently introduced by South Africa include a 35.9% levy against the alleged dumping of other flat-rolled products of iron or non-alloy steel, of a width of 600mm or more, and the extension of the safeguard duties with a rate of 48.04% on threaded fasteners of iron or steel effective July 2023.
The industry has also called on the government to consider a Reference Pricing System and to invest more into technology to enhance analyses of import data. This would “enable Sars (SA Revenue Service) to go to the exact import transaction that is subject of a suspected illicit” transaction, industry players said.
They also said the government had to “unlock supply chain constraints, either on the raw material side or the logistics or the production facilities, or energy supply, or labour-related issues” that ultimately impact the availability of steel products on the local market.