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South African steel industry faces global oversupply

Saisc CEO Paolo Trinchero

Saisc CEO Paolo Trinchero and Saisi acting secretary general Johann Nel discuss the challenges currently facing the local steel industry

Saisc CEO Paolo Trinchero

10th July 2015

By: Bruce Montiea

Creamer Media Reporter

  

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The South African steel industry is under severe stress – an ongoing issue exemplified by steel and vanadium slag producer Evraz Highveld Steel & Vanadium filing for business rescue in April and integrated steel company ArcelorMittal South Africa reducing production capacity at some of its mills early this year, says Southern African Institute of Steel Construction (Saisc) CEO Paolo Trinchero.

He tells Engineering News that a global oversupply of steel, compounded by shrinking demand and subsidised steel imports, especially from China, are some of the factors that have contributed to the industry’s decline over the past three years.

“China has exported 100-million tons of steel in the last financial year, and it also has excess capacity owing to the slowdown in demand. It has 300-million tons of excess steel capacity, compared with South Africa’s total production capacity of nine-million tons. There is, therefore, always a danger of China flooding our market and destroying it.”

Trinchero adds that, although there was a rise in steel consumption from 2007 to 2009, leading up to the 2010 Soccer World Cup, as well as during government’s power station build programme, from 2011 to 2014, steel consumption has since been on a dramatic decline.

He adds that the load-shedding being implemented by State-owned electricity company Eskom also puts pressure on steel mills, as it means that mills have to stop and start, disrupting production.

Supply chain issues, including high fuel costs, add to the challenges currently facing the steel industry, says Trinchero, adding that exporting steel is also expensive for companies.

“If you wish to export you have to get steel out through the harbour, and the Durban harbour is one of the most expensive harbours in the world. This affects our export competitiveness.”

He adds that labour costs in the steel industry also continue to increase, despite the current low demand for steel and the low steel price.

Remedies
In an effort to combat these challenges, the South African Iron and Steel Institute (Saisi), in collaboration with the Department of Trade and Industry (DTI), is working on trade remedy actions, such as imposing duties on imported steel and instituting countervailing actions against big steel exporters such as China.

Saisi acting secretary-general Johann Nel says the industry needs government’s assistance to protect the local primary steel industry and the value-adding downstream manufacturing industry.

He tells Engineering News that stimulating demand through programmes such as the National Development Plan is one of the measures that can boost the steel industry. He says government needs to start getting some of the projects in the programme under way to create work for steel companies.

Nel also believes that government needs to encourage investment in the mining industry, as a substantial amount of steel is consumed by the mining industry.

He adds that, when it comes to regulation, the industry would like to see the designation of steel enforced to ensure that government projects consume local steel. Nel says the issue of local designation was prioritised by the DTI in the latest Industrial Policy Action Plan, launched last year.

He adds that the steel industry could also be helped by the proper coding of imported steel to ensure that it is clearly marked, which prevents it from being misallocated, as this could result in duties not being paid.
Meanwhile, Saisc is also working on the designation of fabricated structural steel and related products.

Future Outlook
Trinchero tells Engineering News, however, that some projects are expected to materialise in the next three years, which means that there is strong hope for the steel industry in the future.

He says the renewable-energy sector promises to create a lot of work for the industry, noting that the Renewable Energy Independent Power Producer Procurement Programme will continue to provide the sector with work.

Nel adds that the oil and gas industry in neighbouring countries, such as Mozambique, also promises to create work for the South African steel industry in the medium term.

Saisc also foresees the development of South Africa’s oil and gas industry in the next two to three years.

He adds that some work is in the pipeline owing to development in rural areas, including the construction of shopping and refurbishment projects, such as the refurbishment of Durban harbour.

Moreover, Nel says South Africa’s rail capitalisation projects currently under way under the auspices of State-owned rail company Transnet and State-owned passenger rail services company the Passenger Rail Agency of South Africa, as well as investments in Eskom’s transmission infrastructure, will also create opportunities for the local steel industry.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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