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Govt ready to back steel industry’s bid for tariff protection

Govt ready to back steel industry’s bid for tariff protection

Photo by Duane Daws

13th July 2015

By: Terence Creamer

Creamer Media Editor

  

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The South African government confirmed on Monday that it would support an application by domestic steel companies for across-the-board tariff protection of 10% – South Africa currently had no duties in place on primary steel imports.

The International Trade Administration Commission of South Africa (Itac) had already received the application and an adjudication process was under way.

Department of Trade and Industry (DTI) deputy director-general Garth Strachan told Engineering News Online that government was “extremely concerned” about the state of the industry, which was facing intense import competition amid weak domestic and international demand.

“We are acutely aware of the fact that there is a global glut of steel . . . which is placing South African mills, both big and small, under enormous pressure,” Strachan said.

International industry body worldsteel warned earlier this year that the industry was facing a “new normal” of low growth, owing primarily to a fall in Chinese steel demand. In addition, “excessive” steel capacity created during the boom period meant that exports were surging even though capacity utilisation rates had fallen to below 75%.

The fallout in South Africa had been seen most starkly in the fact that the country’s second-largest steel producer Evraz Highveld Steel and Vanadium had entered business rescue earlier in the year. The country’s largest steel producer ArcelorMittal South Africa (AMSA), meanwhile, had repeatedly warned of “difficult trading conditions”, which it said were exacerbated by rising costs and cheap steel imports from China.

However, AMSA stressed that it had not yet made any “definitive decisions” regarding plant closures, with CEO Paul O’Flaherty having confirmed only that it was in talks with government to find “lasting solutions to the challenges faced by the industry”.

Strachan stressed that, while the immediate priority was to ensure protection for the domestic industry, government would also be seeking “trade-offs”, which would improve pricing conditions in the longer term for domestic steel consumers.

Government and AMSA had been at loggerheads for a number of years over the steel group’s pricing policies, with Strachan arguing that the group’s approach had resulted in domestic consumers paying prices that were in the “highest quartile” globally.

O’Flaherty began making overtures to government, which is seeking a so-called “developmental steel price”, in 2014 in a bid to resolve the stand-off and in May Economic Development Minister Ebrahim Patel announced the appointment of an independent panel of steel-industry experts to offer advice on the pricing model. It is understood that the panel was expected to make its proposals during the course of July.

Strachan indicated that there had been an easing in hostilities, stressing that the “objective situation” had changed materially and that it was, therefore, willing to support an increase in protection, as well as an “expedited” Itac adjudication process. Such support was important, as Trade and Industry Minister Dr Rob Davies would need to approve its report and submission ahead of implementation.

However, anaemic domestic demand remained another key area of concern for the sector, with O’Flaherty having already appealed for steel to be “designated” by government as an input that should be procured locally for public infrastructure programmes.

Scaw CEO Markus Hannemann told Engineering News Online that weak demand from the mining and construction sectors, combined with the slowdown in China and a surge in imports, had translated into “extremely depressed” prices.

The “commodity bloodbath” also meant the mining companies were cutting back on investments and spending, while promised government infrastructure projects had failed to materialise.

“We need to see government spending money on infrastructure,” Hannemann argued, adding that private investors were likely to remain reticent in light of current economic uncertainties.

But Scaw, which produced steel from scrap, had the added problems of scrap supply and prices, which had remained resilient.

Strachan said the DTI was working to ensure that existing measures to prevent the “unfettered” export of scrap metal were tightened, but also hinted to possible additional measures in future.

Edited by Creamer Media Reporter

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