South Africa’s steel industry has experienced considerable headwinds over the past few years; however, the biggest challenge that must be dealt with is the import duties that have been implemented to protect primary producers, but that has adversely impacted on the downstream industry, various speakers noted during a discussion hosted by steel products producer Duferco Steel Processing, in Gauteng, on November 30.

The participants stated that, with over six years of protection in the form of import tariffs on steel products, prices have not improved and only primary steel producer ArcelorMittal South Africa (AMSA) has benefitted, to the detriment of the downstream steel industry.

Participants concurred that the lack of local competition in the supply of coated flat steel to the industry continues to impact the downstream industry.

Duferco MD Ludovico Sanges posited that the high prices the local steel industry had to pay for its primary product was costing the country in terms of jobs, exports and ensuring it had the capacity to build much-needed infrastructure.

As a result of the protective tariffs introduced on hot rolled coil (HRC) to protect AMSA, South Africa’s only primary steel producer, Duferco says it could no longer compete on the domestic market and was now competing successfully on the international market using imported HRC steel.

The result, however, was that the rest of the steel value chain was reliant on AMSA, which held a “monopolistic” power, speakers indicated.

They added that AMSA was unable to meet the demands of the downstream industry, and as a result, the country was unable to produce the requisite amount of steel to meet its own needs, could not maintain its status as a steel exporter and jobs had been lost.

Speakers pointed out that when the protective tariffs were initially gazetted, several conditions were imposed on AMSA, including that it maintain the current pricing model for steel offered to domestic rerollers, as well as that it should preserve jobs and keep plants open.

However, the speakers said, neither of these conditions had been met as, for example, AMSA closed its Saldanha steel plant in 2020. They added that AMSA had not been held accountable for not meeting its commitments to the International Trade Administration Commission of South Africa (Itac), for example to provide steel to the local re-roller industry at import parity prices without duty protection.

Moreover, speakers indicated that when rerollers such as Duferco effectively exited the local market because of a lack of access to products needed from AMSA, and with tariffs making imported products uncompetitive, they were “forced” to turn to AMSA for supply in this regard.

However, speakers outlined several problems in dealing with AMSA, ranging from the company being unable to meet demand, products not being delivered on time, AMSA using a selling model that left the downstream industry unable to buy the required volume, among others.

Therefore, Sanges said, the tariffs must be reviewed, with input from all stakeholders. He averred that exemption would allow Duferco to reduce imports of coated steel and increase local manufacturing using local resources.

Sanges said Duferco’s application for tariff exemption to allow it to compete in the domestic market had received no proper answer in two years and attempts to meet with the Department of Trade, Industry and Competition (DTIC) and Itac had proved unsuccessful.

Moreover, the tariffs were required to be revaluated on a three-year basis, and while this had been done, a thorough analysis of this had not taken place, speakers said, which had allowed them to remain in place despite continued opposition by the downstream industry.

A representative of government was invited to participate in the discussions on the day, as was a representative of the DTIC. The former was unavailable, while the latter did not respond, it was noted.

To mitigate the issues alluded to, a myriad of suggestions was proffered, with pursuing the legal avenue being one of these. However, while some were in favour of this, and optimistic about a favourable outcome, others noted that, with the time-consuming nature of legal actions, many downstream players would not survive in the interim.

A united voice representing the downstream industry was also suggested, which would lobby against the tariffs on behalf of all of the impacted companies.

Also, it was noted that a competitive domestic industry should be striven for, as this would provide a way for companies to survive in the interim.

Drawing media and general public attention to the issue was highlighted as a measure that could prove the most successful, with speakers indicating that only when the laymen understood what was actually happening, and the impact this would have on their pockets, would pressure be put on government and Itac.

ITAC’s RESPONSE
Responding to questions from Engineering News, Itac on December 2 said that, in response to the call for removal of tariffs, it was continuously engaging various players in the entire steel industry value chain.

“In line with the Steel Industry Masterplan, Itac is always about balancing the interest of both upstream and downstream producers, with a view of preserving domestic investment and employment.

“It is in line with this principle that Itac, over and above keeping the duty protection in the upstream industry, always considers applications for the creation of rebate provisions on products not manufactured locally or in case of domestic shortages,” it stated.

With regard to discussions with downstream industry companies, ITAC noted that, as part of its investigation processes, it always engaged with all known interested parties to solicit their views and comments, including publication in the Government Gazette for interested parties to comment.

In terms of the claims surrounding the tariffs being reviewed properly, ITAC asserteds that a thorough review of the customs duty, applicable to coated steel products was conducted and finalised by the commission on April 21, 2020.

“Subsequently, the Minister considered and approved Itac’s recommendation to maintain the duties at the current level of 10% ad valorem on September 4, 2020. The relevant recommendation can be found in Itac Report No 630.

“The South African Revenue Service (Sars) recently implemented Itac’s recommendation for the creation of a rebate provision on various flat steel products, to cater for cases of domestic shortages of such products as published in its Report No 667,” the entity outlined.

AMSA’S RESPONSE
Speaking to Engineering News on December 1, AMSA provided a response to some of the statements made during the discussion hosted by Duferco.

Firstly, the company noted that issues raised by a few customers “in self-interest” did not justify the conclusion that AMSA had challenges which had resulted in discontented customers.

It highlights that customers had indicated that the supply position from AMSA had been restored during the second half of the year and, cited its latest customer survey wherein customers confirmed they were happy with the quality received from AMSA.

AMSA emphasises that duties protected domestic capabilities and jobs in the South African steel and manufacturing sectors and also averred that these were only implemented after a thorough, independent assessment and were minimal when compared to other sectors such as automotive and agriculture, and when compared with other steel producing countries globally.  

The company also outlined that it had supported pricing for the downstream in several ways, with its pricing model based on several factors.

Firstly, AMSA said its flat products prices were capped in line with an international basket price which was agreed with government in 2017, and ensured that pricing considered market dynamics as well as customer requirements, and that it had adhered fully to this pricing mechanism.

Secondly, it said it had honoured its commitments regarding pricing to re-rollers and stated that this had worked well. “The company does not currently supply steel to one re-roller due to commercial issues which could not be resolved, not because of the lack of availability of steel. Importantly, this party has tried to secure pricing that deviates from the agreed principles,” AMSA informed.

Thirdly, AMSA said it was the only primary steel producer in South Africa to offer support to the downstream industry through a formal programme focused on exports of value-added products made with the company’s steel.

“AMSA makes available – to customers and the industry – various rebates and incentives to promote exports and for projects to assist in ensuring the competitiveness of the South African economy. For the period of 2017 to 2021 value added export incentives passed on to the local downstream market have been significant, in excess of R1-billion,” the company highlighted.

AMSA also pointed out that, as a listed entity, it was transparent and reported on its performance publicly. “It would be interesting if some of the customers complaining about pricing could also be transparent about their pricing models, imports that they bring into the country and transfer pricing arrangements with their related foreign entities. This will allow a better comparison of pricing models and their appropriateness,” it noted.

AMSA mentioned that it was concerned with several contraventions of duties by certain downstream players, noting that this was evidenced from data released recently by Sars.

“It is submitted that the claims by certain customers regarding a lack of capacity or late deliveries are nothing more than an attempt to be allowed to circumvent the duties – which are in place to protect the entire South African steel manufacturing sector and not just one player – to the detriment of the local steel industry and long-term growth of the South African economy,” AMSA posits.

AMSA also emphasised that it could meet the demand of the local steel industry, highlighting, for example, that one of the company’s blast furnaces in Vanderbijlpark had been shut temporarily until this month owing to low demand and high stocks in the market. “This smaller furnace produces more than three times the annual requirements of many downstream customers,” it acclaims.

The company explained that better-than-expected improvement in demand following the Covid-19 lockdowns caused a global shortage in steel, and that the company responded quickly to catch up on the temporary backlog, despite some technical difficulties and production challenges caused mostly by logistical issues.

“The various protection measures implemented by the South African government are in place to protect the entire South African steel manufacturing sector and not just one player, as so often asserted in the media. These measures are vital for the survival of the country’s entire steel industry and to ensure the sector remains the backbone of South Africa’s industrial manufacturing capability,” AMSA stresses.  

It added that duties had also been imposed on various locally manufactured steel products, produced by downstream manufacturers, such as fasteners, chains, wheelbarrows, steel tubing, roof sheets, cables, etc., and not just on primary steel produced by AMSA and other steelmakers.

“The assumption that without duties on primary steel products the downstream manufacturing sector would be on a level playing field with the rest of the world, is incorrect as there are many other factors that impact the competitiveness of our local steel industry, not least of which is the availability, reliability and cost of logistics and electricity.

“These national constraints should be tackled by industry together and should not be used as an excuse to permit imports, which will exacerbate the economic challenges and decline,” AMSA asserts.

It also highlights that South Africa is not alone in applying customs duties, with normal customs duties on steel imports seen in over 150 out of 200 countries worldwide and in almost all major steel-producing countries. AMSA outlines that 135 countries have an average of 10% duty on South African exports to them, including China, which has a duty of 5% on South African steel imports.

“Local steel manufacturing has a large economic multiplier effect (five to six times), along with the ability to enable and grow local, skilled capacity. For South Africa not to protect its steel production and steel-related manufacturing and industrial capability as it recovers from the significant economic impact of the Covid-19 pandemic and now rising inflation and the growing possibility of a global recession, will be disastrous for the industry and the economy,” AMSA posited.

It also noted that Duferco needed tariffs on the products it produced, mainly galvanised and cold rolled steel, to compete against the same products produced in China. It says that Duferco had no objection regarding those duties, which contrasts with it calling for a tariff waiver on input material from the same sources of production.

“This indicates a flawed business model which relies on ‘subsidised’ input raw material to make it viable. The other re-roller in South Africa buys input material from AMSA and is satisfactorily supplying the needs of its customers,” AMSA stated.

It also mentions that, in the past 12 years, the country’s apparent steel use had reduced from six-million tonnes to about 4.5-million tonnes.

“Given that South Africa’s available steelmaking capability far outstrips demand, the loss of 1.7-million tonnes to foreign steel mills is concerning. Imported steel products continue to impact the viability of the South African steel industry and it is for this reason that the protection measures are in place,” it pointed out.

AMSA emphasised that it remained committed to working with all stakeholders to ensure the entire steel manufacturing supply chain played an active role in building a thriving South African economy.