Steel producer ArcelorMittal South Africa (AMSA) has reached a five-year agreement with the Department of Trade and Industry on steel pricing principles.

The agreement is intended to achieve a fair price for steel, which enables AMSA to earn a reasonable margin from domestic sales, while being competitive and efficient.

The downstream industry will benefit from a more certain and transparent pricing mechanism, which incentivises improved efficiencies in steel production and beneficiation.

“We are extremely pleased that we have reached an agreement with government on fair pricing principles,” AMSA CEO Wim de Klerk said in a statement on Friday.

The local price for flat steel products will be based on an import weighted basket that is determined by the weighted average of domestic prices in the European Union, Asia and the North America Free Trade Agreement signatories – the US, Canada and Mexico.

AMSA’s compliance with the pricing mechanism for flat steel products will be monitored on a quarterly basis and will be the responsibility of the steel task team, comprising representatives from government as well as the primary and downstream industry, under the auspices of the International Trade Administration Commission of South Africa.

The agreement comes as a result of ongoing engagement with government and other industry stakeholders to implement a number of positive measures that will ensure the future of the South African steel industry.

These include protection measures for the local industry from cheap imports coming into the country.

“The company has made a commitment to invest R4.6-billion over five years and improve competitiveness in relevant product lines for key sectors of the economy at the specified steel quality,” said De Klerk, adding that AMSA is focused on turning the business around so that it is, once again, on a firm financial footing.

Government will lift the provisions deeming all steel as local and implement the designation of minimum local steel products for State procurement and government infrastructure spend, taking into account cost competitiveness and affordability.

The designation of minimum local steel content thresholds on additional products will be considered and reviewed on a regular basis in cases where government is buying the final steel product.

The terms of the agreement may be reviewed within the five-year period if the agreed principles are not achieving their original intent.