Steel import duties and a shrinking steel manufacturing industry

ArcelorMittal foundry. Photo: Supplied

ArcelorMittal foundry. Photo: Supplied

Published Jun 12, 2024


Gerhard Papenfus

The government’s continued interventions to protect an ailing ArcelorMittal South Africa (Amsa), will not only fail to save Amsa in the long run but substantially contribute to the gradual erosion of the entire steel industry.

At the time of the first introduction of import duties in 2015, the then-CEO of Amsa, Paul O’Flaherty, stated that if duties were not introduced, Amsa would be around in future, but with a much smaller footprint.

However, the implementation of the duties did not prevent the continued decline of Amsa. The closure of Saldanha Steel and the contemplation of the closure of Newcastle Steel Works are mere examples of its steady decline.

One of the undertakings made by Amsa in 2015, to substantially invest in its antiquated plant in exchange for the duties, for obvious reasons, did not materialise.

From a shareholder’s point of view, it simply did not, and does not, make sense to pour capital into a 60-year-old mill with a largely un-upgradable structure. Amsa’s technology is of such a nature that it makes sense for it to pursue a strategy of canvassing increased government protection in order to realise higher selling prices.

Is this a case of Amsa not being concerned about a contracted steel industry as long as it can sell at inflated prices, protected by a barrage of duties, even if on a smaller scale?

Amsa has, after all, over time become a high-cost producer. The cost of production with such an old mill will only increase and thereby, aggravate the problem.

As long as Amsa receives protection, the downstream steel industry will continue to shrink and Amsa, contrary to receiving substantial investments to improve its facilities, will be subject to being a low-priority investment destination for its parent company, ArcelorMittal International.

The government should reverse the protectionist strategy and, in order to increase competition, allow the steel downstream access to cost-effective raw material.

The decrease in competition, as a result of the increase in duties, has significantly contributed to the contraction of the entire steel downstream.

It is generally accepted that the steel industry shrunk by about a quarter since 2015 when the first duties were introduced. The government’s strategy is leading to a situation where the erosion of Amsa’s customer base will eventually lead to its demise.

Scrapping import duties will pose challenges. A transition from being compelled to buy only uncompetitive raw material from Amsa, to sourcing price-competitive raw material globally, will be disruptive, but far less so than the gradual demise of an entire industry.

We therefore call on Minister Ebrahim Patel and the chief commissioner of the International Trade Administration Commission of South Africa to reconsider the introduction of the duties implemented in December 2023 and February 2024, and to reject Amsa’s application to re-introduce safeguard duties on hot-rolled products.

Gerhard Papenfus is the CEO of the National Employers’ Association of South Africa.