Competitiveness, not protection, should form basis of steel’s survival – Patel

20th May 2016

By: Terence Creamer

Creamer Media Editor

  

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Amid calls by ArcelorMittal South Africa (AMSA) for safeguard duties in addition to the 10% protection already introduced on a range of steel products entering South Africa, Economic Development Minister Ebrahim Patel has emphasised government’s desire for the survival of the sector to be premised on competitiveness, rather than protection.

When releasing an operational update for the quarter ended March 31, AMSA insisted that safeguard duties remained critical in the short term to ensure the future sustainability of primary steel production, while reporting that applications for such duties had been submitted to the International Trade Administration Commission of South Africa (Itac).

“The investigation in respect of safeguard duties relating to hot-rolled coil (HRC) has been initiated. Due to the combination of certain products, one further application remains outstanding and will be finalised shortly,” the company said.

Itac had recently recommended the imposition of a 10% duty on HRC and other bars and rods, which would be implemented once the relevant government processes had been completed.

Protection was granted on galvanised and colour-coated steel in December, and, in February, Itac gazetted notice of 10% protection on bar and wire rod, as well as plate, cold-rolled coil, sections, and semifinished products such as slabs, blooms and billets. In other words, Itac had either implemented or recommended the implementation of 10% duties across ten separate steel categories.

However, AMSA argued that further safeguard duties would still be required to buffer it and other local producers from unfair imports arising primarily as a result of overcapacity in China, which had led to global oversupply. “Steel industries around the world continue to struggle and the South African steel industry is not immune to the international trend.”

D

uring January and February, 164 000 t of steel was still imported into the country, of which 79 000 t, or 48%, was HRC. “Despite the completion of the 10% duties . . . it should be pointed out that the implementation of safeguards remains critical to address the issue of imports and ensure the sustainability of the industry and the company.”

Itac had indicated previously that it planned to complete its investigations into AMSA’s safeguard applications by mid-year.

However, Patel had stressed that protection for the primary-steel sector should not come at the expense of downstream steel consumers, adding that protection would be introduced with caveats, while Itac would also track prices and review tariffs yearly.

Government had indicated that its support was predicated on fair domestic pricing of steel, as well as a condition that AMSA did not close plants, cut jobs, or pull back from planned investments of R4.6-billion to improve plant competitiveness.

In fact, speaking at the release of the latest version of the Industrial Policy Action Plan, Patel said government did not want tariff support to form that basis of AMSA’s long-term survival. “We are looking for the company to ensure that, as it cooperates with us to survive these tough global circumstances . . . that it sees its long-term survival to be not principally based on tariffs, but on improving the competitiveness of its own operations and providing steel at a competitive price to downstream users.”

The outcome being sought by government was to ensure that the benefits of the local processing of domestic iron-ore arose in the form of the local production of capital and consumer goods using South African steel.

AMSA said significant progress had been made with the Department of Trade and Industry and the Economic Development Department regarding a pricing mechanism for local flat steel, but the process had not been finalised.

In addition, the group was pursuing a black economic-empowerment deal, with Likamva Resources having been identified as the group’s preferred partner.

AMSA was pressing ahead with its safeguard applications, despite recent price increases, which it attributed to rising international prices and higher input costs. It insisted, too, that the increases were not a response in increased levels of protection.

“The base price of HRC internationally has increased by $86/t from December 2015 to March 2016.”

AMSA said that, following the recent steel price increases, it antici- pated that overall liquidity would “normalise at acceptable levels”. It added, however, that a return to profitability was still premised on an expectation of greater protection, as well as the designation of locally produced steel for use in government infrastructure projects.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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