Steel producer ArcelorMittal South Africa (AMSA) insists that the institution of a 12% safeguard duty on hot-rolled coil (HRC) from July 1 will not result in a commensurate rise in domestic prices for the primary-steel product, owing to a pricing agreement with government that regulates the setting of domestic flat-steel prices.

The safeguard, which is in the process of being authorised by the World Trade Organisation (WTO), will be introduced in addition to the 10% duty already in place for HRC, thus raising overall protection for the product to 22% for a three-year period.

Trade and Industry Minister Dr Rob Davies recently signed off on the safeguard duty, following an International Trade Administration Commission of South Africa investigation, which confirmed both a surge in HRC imports into South Africa and the fact that those imports were harming the domestic steel producer.

AMSA CEO Wim de Klerk says its pricing agreement with government disallows it from deviating from an agreed ‘fair basket price’ methodology, which is based on domestic selling prices in 12 countries across Europe, Asia and the Americas.

Using an agreed price weighting, AMSA gathers flat-steel prices from Germany, France, the UK, Italy, Spain, Japan, South Korea, India, Taiwan, the UK, Canada and Brazil at the middle of each month, using indicators generated by both MEPS International and CRU. The company then adjusts these prices, on the last day of the month, to the prevailing rand-dollar exchange rate to establish the domestic price.

On a quarterly basis, the Department of Trade and Industry audits the basket and has the right to insist on the application of a discount to steel consumers should it find that AMSA has been overcharging during the period.

De Klerk reports that the company’s last HRC increase was announced in December and that, while international prices increased during the first quarter of 2017, domestic prices remained unchanged, owing to the strength of the rand during the period.

Prices could, in future, rise or fall depending on international price trends and the exchange rate, but will not be directly influenced by the 22% tariff protection. Instead, the aim is to curb “subsidised” HRC imports, and enable AMSA to recover domestic market share.

AMSA reports that, while flat-steel imports peaked at above 1.1-million tons in 2015, the 887 000 t imported in 2016 still represented an increase against historical averages. AMSA argues that the 10% tariff is, thus, insufficient to deal with the import threat.

The safeguard is limited to HRC and plate, but AMSA may also apply for additional protection on cold-rolled steel in future and is also weighing its long-steel options, owing to increasingly difficult tradition conditions for long products.

In fact, AMSA has launched a review of its long-steel operations at Newcastle, where liquid steel production has already been curtailed, owing to weak market conditions and high scrap prices. De Klerk says the long-steel action plan will be finalised by June and could have implications for Newcastle’s 2 800 employees.

However, the KwaZulu-Natal plant had started supplying blooms to Highveld’s heavy structural mill, in Mpumalanga, which is being reopened in line with a tolling agreement concluded between AMSA and Highveld last year.

De Klerk says the first 3 000 t was produced by Highveld in April and that the intention is to ramp up further in May.

“Highveld has produced everything they said they would and we have invoiced our first product. Unfortunately, prices have fallen for the product and China exports more and more,” he says, adding that various other downstream products, such as wire and reinforcing bar, are also coming under intense pressure from cheap imports.

A decision is also urgently required from the National Energy Regulator of South Africa (Nersa) regarding a special power pricing agreement with Eskom for the Saldanha Steel plant, which would otherwise curtail production during the high-tariff winter months.

De Klerk reports that Eskom and AMSA have submitted the proposal to Nersa and that he expects that a determination will be made at the Energy Regulator’s next meeting later this month. He says power accounts for 34% of Saldanha Steel’s costs during winter and, in the absence of a new electricity deal, the mill’s sustainability will come under increased pressure.