Steel producer ArcelorMittal South Africa (AMSA) says the earlier-than-planned restart of its second blast furnace at the Vanderbijlpark Works will position the company to “quickly resolve” the current shortage of steel, which has been negatively affecting downstream fabricators and manufacturers for several months.

The JSE-listed company restarted Blast Furnace C on December 20 to help address the supply backlog, having originally planned to restart the facility in January this year.

AMSA reported on January 8 that the furnace was in full operation and would add around 600 000 t to South Africa’s yearly flat steel production.

“With all three blast furnaces fully operational at our Newcastle and Vanderbijlpark plants, we expect that we will be more than able to meet the steel requirements in South Africa and neighbouring countries in the coming months,” CEO Kobus Verster said.

In response to questions posed by Engineering News & Mining Weekly, AMSA confirmed a shortage of steel, which it described as a global issue.

“There have been increased lead times for supply from steel mills around the world, with most mills now quoting production dates in the second quarter of 2021, and for some niche products, even the end of the quarter.”

Several domestic fabricators have reported serious shortfalls and the Department of Trade, Industry and Competition is conducting a survey of downstream steel consumers to assess the scale of the problem.

“As has been the case in the rest of the world, ArcelorMittal South Africa has been experiencing temporary backlogs in supply due to almost three months of disruption to production as a result of the different levels of lockdown.

“These temporary shortages were also due to destocking (running at lower stock levels) in the entire steel value chain, even before the nationwide lockdown,” the company explained in response to Engineering News & Mining Weekly questions.

“The choice at every level of the supply chain to carry less inventory resulted in depleted inventories, below normal operational levels, at every stage of the supply chain, from ArcelorMittal South Africa through to steel service centres and steel users.

“Certain short-term factors, such as lockdown-affected construction projects which were rapidly being completed once the lockdown eased, resulted in steel demand increasing at a rate quicker than originally anticipated.”

AMSA responded by “expediting” the restart of Blast Furnace C at Vanderbijlpark and, with all three blast furnaces now operational across the group, it expects to be able to more than meet South Africa’s steel requirements, as well as that of the country’s neighbours.

“With the restart of the second blast furnace in Vanderbijlpark, the increased steel capacity from the beginning of January 2021 will quickly resolve any remaining backlog issues.”

AMSA expected market demand to remain weaker than was the case in 2019 and says it is, thus, “crucial that the maximum volume of domestic demand is met by locally manufactured product”, as any excess production would be exported at a loss.

Imports, AMSA argued, would fall short in meeting the current backlog, as they would arrive in South Africa only at the end of the second quarter or even in the third quarter, “way after the temporary supply backlog has been dealt with”.

There was, thus, “no basis for lifting import and safeguard protection where there is adequate local capacity”, as several downstream firms have proposed.

South African Institute for Steel Construction chairperson Nicolette Skjoldhammer, who is also Betterect MD, told Engineering News & Mining Weekly that, in her view, dropping all duties and safeguards would stimulate “massive growth” in the fabrication sector, which is a labour-intensive activity.

Primary production of steel, she asserted, created two jobs for every 1 000 t produced, whereas fabrication creates 60 jobs for every 1 000 t fabricated and another 40 jobs if that steel is erected.

“I feel that the market should be free and fair and that as AMSA is a privately owned company, it should not enjoy more protection than the downstream sector is afforded and given the increase they just announced I cannot convey the urgency of this matter enough.

“The industry is imploding and it quite simply does not need to,” Skjoldhammer said, while calling for all safeguards and duties to be urgently dropped.

Steel in South Africa receives base protection of 10%, but certain flat products also currently receive safeguard protection of an additional 8%.

“ArcelorMittal South Africa remains firmly of the view that the steel industry protection measures implemented by the South African government are vital for the survival and success of the country’s steel industry and are essential for economic growth and development, given the benefit that local steel manufacturing capability would have in supporting infrastructure development and South Africa’s industrial manufacturing capacity and capability.

“This is especially important given the government’s recent statement of an intended boost to infrastructure development as part of its efforts to stabilise and rebuild the national economy.”

AMSA appealed for a longer-term view to be taken “rather than acting hastily to address what has been a temporary supply issue”.

Responding to concerns over rising steel prices, AMSA said the basket pricing mechanism agreed with, and monitored by, government for flat steel products was intended to ensure that South African customers benefit from a price that is fair.

“ArcelorMittal South Africa continuously monitors its pricing levels in strict accordance with the pricing principles agreed with the government and any price movement – upward or downward – is dictated by the pricing principles.

“The imposition of customs duties or safeguards therefore has no impact on the pricing of flat products in South Africa and these measures are designed only to address the volume of imports into the country.”

AMSA said that steel prices in global markets had risen by around 60% over the past three months, and in some markets, significantly more.

“The rand:dollar exchange rate was volatile throughout 2020, significantly influencing the prices in the local market. Even though the rand finished the year almost where it started, the steel prices have increased substantially globally.”

Input material costs had also increased significantly in 2020 and the group anticipated supply-demand imbalances and cost pressures in 2021.

On how downstream industries could be better protected, AMSA argued that the entire steel-based manufacturing value chain needed to be supported, with adequate protection for the manufacturing industry against the unfair import of finished steel products.

“Therefore, ArcelorMittal South Africa has assisted the downstream industry to compete against imported finished steel imports and has supported various efforts to obtain protection for the downstream industry. The assumption, however, that without duties on primary steel products the downstream manufacturing sector would be on a level playing field with the rest of the world is incorrect.”

However, Skjoldhammer is not convinced that government and AMSA are doing enough to support the downstream sector.

“In my opinion, it appears that there is a strategy to protect the primary producers and not the downstream at all, which, given the employment stats quoted above, is baffling.

“If this was not the case surely there would be more action being urgently taken to assist the downstream by removing all duties and safeguards. “Given the speed at which they were imposed, logic dictates removing them could be done equally as quickly.”

She describes the recent shortages as devastating, and adds that the supply challenges were not confined to the Covid-19 period and had been ongoing for more than two years.

“Without a secure supply chain – and security refers to price as well as availability – it is nearly impossible for fabricators to competitively price on projects and therefore we are losing significant amounts of work to overseas competitors.

“It is also important to note that there is a significant amount of work that we as South African fabricators can bid on as we have the skills required to do so; however, we are consistently being outbid by international fabricators in Turkey and Mexico.”