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Steel group moves ahead with restructuring despite recent protection efforts

11th September 2015

By: Terence Creamer

Creamer Media Editor

  

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Steel producer ArcelorMittal South Africa (AMSA) announced last week that processes had been initiated “with immediate effect” that could result in the retrenchment of 400 people at the Vereeniging meltshop and the forge, in southern Gauteng.

An “industrial footprint review” had also been initiated for its far larger Vanderbijlpark Works, which remained unprofitable – the review would be completed by the end of October and could also result in job losses.

The announcement of the Vereeniging Works Section 189 consultation process with trade unions followed a footprint review initiated by AMSA in July as a result of a sharp fall in prices, a surge in imports and weak domestic demand.

It also followed only days after government moved to impose 10% duties on certain steel grades and gave an indication that it was willing, as long as due process was followed, to institute protection across a broader range of flat- and long-steel products.

The increase in protection was approved following an investigation by the International Trade Administration Commission of South Africa, which recommended that the duties on zinc-coated, or galvanised steel, aluminium-zinc-coated steel and colour- coated steel be increased from free of duty to 10% ad valorem.

However, government insisted that there could be no price increases for the steel products in question and also placed conditions on job cuts and future investments at beneficiary companies.

President Jacob Zuma also released a statement indicating his concern about the pressure that the industry was facing. He urged government, business and labour to work “tirelessly together to save jobs in the iron and domestic steel industry sector”.

Following a recent meeting between government business and labour, it was also agreed that all further applications for protection would be considered “on an expedited basis”.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) welcomed the decision to impose a 10% tariff on cheap, imported steel.

Seifsa chief economist Henk Langenhoven said that, while the country’s long-term priority was to grow the economy by ensuring it was more competitive internationally, the imposition of import tariffs would give local manufacturers a chance to enhance their ability to compete and save jobs.

In light of the current distressed state of the industry, protection was a “choice between losing the entire sector, as we have seen happening in Australia, or trying to ‘ride the short-term storm’ and adjust for the future”.

Industry participants, including AMSA, Highveld Steel & Vanadium and Scaw Metals, had also indicated that the initial applications for 10% protection could be followed up by antidumping applications, which would target “unfair” imports from specific countries.

The domestic industry was particularly concerned about the rise in imports from China, where there is said to be a glut of “subsidised” steel seeking new markets, owing to a decline in Chinese demand.

AMSA said in a statement that the decision to move ahead with the restructuring had been taken “despite our best efforts” and was made in light of an assessment that suggested the poor outlook was “not about to change in the foreseeable future”.

“We acknowledge and appreciate the steps taken by government with regard to the initial approvals of import tariffs for two of our products. However, these will only assist in the medium to long term, and trading conditions continue to worsen since the announcement in July of the footprint study of our long-steel business,” Paul O’Flaherty said.

The possible closure of Vereeniging, which is South Africa’s oldest operational steel plant, would affect about 400 direct employees and contract service employees.

“It is envisaged that the operating mills of Vereeniging will be merged with the operations of the Newcastle Works to create one long-steel business. We anticipate that this decision will help optimise the already high and unsustainable fixed costs of the long-steel business.”

Besides the review of the Vanderbijlpark Works, a review would also be undertaken of AMSA’s corporate services, with a view to optimising structures and costs.

“It is envisaged that the review, which will use the services of experts in the field, will be concluded by the end of October 2015, at which time a decision will be announced with regard to any possible further restructuring. The review will include consultations with all employees at Vanderbijlpark Works and corporate services, as well as their representative unions, to find viable alternatives to potential job losses.”

In parallel, work was also continuing on a pricing model that ensured both the short- and the long-term viability of the sector.
AMSA had tabled a pricing model before government, which indicated it was prepared to implement in return for tariff protection and a government stipulation that locally manufactured steel be designated for use in public infrastructure projects.

O’Flaherty had indicated previously that the model under discussion was premised on an “efficient” cost of production, plus a reasonable, but capped, margin.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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