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Steel industry downscaling ‘unavoidable’, Seifsa warns

Outgoing Seifsa president Ufikile Khumalo

Outgoing Seifsa president Ufikile Khumalo

Photo by Duane Daws

9th October 2015

By: Terence Creamer

Creamer Media Editor

  

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Downscaling by South African primary steel producers was “unavoidable” despite recent protection measures, outgoing Steel and Engineering Industries Federation of Southern Africa (Seifsa) president Ufikile Khumalo cautioned on Friday.

Khumalo is also chairperson of Scaw Metals, which confirmed in August that it was considering a restructuring programme that could impact as many as 1 000 of its employees.

South Africa’s largest steel producer ArcelorMittal South Africa is also likely to retrench workers at its Vereeniging facility and was reviewing prospects for its Vanderbijlpark Works, while Evraz Highveld Steel & Vanadium was in consultations with labour, having entered business rescue in April.

Delivering his presidential address in Johannesburg, Khumalo said protection measures already approved, or in the pipeline, for the basic steel industry would help, “but these will not be enough”.

“Primary steel producers are in such distress that short-term downscaling is unavoidable. South African production costs are higher than the lowest cost quartile of producer in the world, who are simply overrunning our market.”

Domestic producers have been particularly vocal about the rise in “subsidised” steel imports from China, where there was significant overproduction in light of the slowdown in the world’s second-largest economy.

The International Trade Administration Commission of South Africa (Itac) had imposed 10% duties on zinc-coated steel, aluminium-zinc coated steel and colour-coated steel and was fast-tracking several other applications for other steel grades. Steel producers were also considering submitting applications for anti-dumping protection to Itac.

Government had indicated that it would support greater protection for the domestic steel sector, but said its support would be conditional on it receiving employment, investment and pricing commitments from the steel producers.

Khumalo said protection seemed to be a “choice between losing the entire sector, as has more or less happened in Australia, or trying to ride the short-term storm and adjusting for the future”.

Seifsa had also urged government to consider extending the protection being offered to upstream producers across the entire metals and engineering sector value chain, noting that downstream manufacturers also faced competition from subsidised imports in light of surplus production globally.

The metals and engineering sector’s gross domestic product contribution currently stood at R123-billion and was also a significant component of South Africa’s larger, yet ailing, manufacturing industry.

Over the past year, domestic metal-sector production had declined 3.9%, profits margins had fallen 27%, while between 10 000 and 16 000 jobs had been lost, Khumalo said. Fixed investment by the sector had also contracted by 16%, while imports had surged, resulting in a sector trade deficit of R30-billion.

The sector’s longer-term recovery would be directly affected by the fortunes of the mining, automotive and construction sectors – all of which were currently confronting hostile market conditions.

“The metals and engineering sector remains a strategic sector . . . with important direct linkages to the primary and tertiary sectors of the economy,” Khumalo averred, while also stressing its centrality to government’s beneficiation ambitions.

But he lamented the lack of policy certainty around the issue of beneficiation, as well as a failure by government to enforce local-procurement regulatory provisions. “All indications are that local procurement is not happening nearly as much as predicted.”

Khumalo also announced that Transman CEO Angela Dick had been elected Seifsa’s new president. Dick is the first woman president of Seifsa, which was founded more than 70 years ago.

Edited by Creamer Media Reporter

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