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Opinion: Transnet strike threatens to be the final nail in the coffin for large bore steel pipe exports to the US

17th October 2022

     

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In this opinion piece, Steel Tube Export Association of South Africa (Steasa) CEO Keitumetse Moumakoe writes about the devastating impact the current Transnet strike is expected to have on South Africa's export of large-bore steel pipes to the US.

The export of locally manufactured electric resistance welded (ERW) and spiral welded (SAW) steel pipe for the transportation of water, gas and petrochemicals was just about decimated in 2018 when US President Donald Trump exercised his authority under Section 232 of the Trade Expansion Act of 1962 to impose a 25% tariff on steel imports, with exemptions for Canada and Mexico, to “purportedly” protect national security.

South Africa’s oil country tubular goods exports into the US’s lucrative oil and gas market came to grounding halt as exemption had not been extended to South Africa even though South African exports accounted for less than 0.3% of US steel demand.

The imposition of Section 232 import duties on South African pipe manufacturers was a salient contributing factor to the demise of the 90-year-old Robor, once one of Southern Africa’s largest exporters of specialised steel pipe to the US.

Ranked among the leading international manufacturers of ERW and SAW steel pipe and having exported to more than 30 countries around the world, Hall Longmore has had to leverage on various means of trade instruments to be able to still export to the US although not at the same pre-Section 232 tariff tonnages. These trade instruments included negotiating better export rebates from the primary producer, being meticulously agile in periods that presented a favourable rand:dollar exchange rate for exports and streamlining any supply chain inefficiencies.

The current Transnet strike could not have come at a worse time for Hall Longmore’s current export orders to the US. The debilitating prevalence of loadshedding and the legacy uncompetitiveness of the domestic steel industry supply chain collectively compound what almost looks like an insurmountable situation.

The absence of a swift resolution to the strike and wage impasse between Transnet and the unions could result in Hall Longmore and South Africa at large losing this key export market and, mind you, the only significant one really left for our American Petroleum Institute-accredited steel pipes. The ramifications of the continued strike are dire from a cost and reputation perspective for all steel exporters irrespective of industry sector considering that:

*Foreign exchange covers (FEC) have been entered into and will be costly to amend.

*The potential of foreign customers cancelling orders that are not shipped which have been made to customer specifications.

*Letters of credit that are in place will lapse if not shipped within the defined shipping period.

*Steel exporters will have no recourse of recovering hundreds of millions in cancelled orders.

*The country is losing several hundred million daily in foreign exchange and denting South Africa’s balance of payments.

The unintended reputational impact on South Africa and the South African Steel fraternity will be difficult to reverse as other companies from other nations wait in the wings to claim the little US bound steel pipe exports the likes of Hall Longmore have been able to retain in spite of all the export headwind challenges into this globally sought-after market.

The advent of South Africa’s Steel Master Plan heralded a plan of hope and action for the revival of the country’s embattled downstream steel industry of finished value-added products. A key pillar of the steel master plan is the growth of beneficiated exports by creating demand both locally and in the international export market. What is currently happening at our ports of exit is a far cry from the meritorious objectives and ideals of the steel master plan and a recipe to derail this road to reindustrialization while it’s still in its nascency.   

In much the same vain as state-owned Transnet Port Terminals' leadership in the Western Cape met with the deciduous fruit industry organisations to discuss contingency plans for the export of deciduous fruit from the Port of Cape Town given the current industrial action across Transnet's operations, steel industry organisations require the same level of prioritization for their members steel exports for both semi-finished and finished products that feed into critical foreign supply chain systems in the auto, petrochemical and oil and gas industries including infrastructure projects where delivery commitments are in place.

Edited by Creamer Media Reporter

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