Opinion: Steelmaking remains a key strategic industry for South Africa

21st January 2022

     

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In this opinion article, ArcelorMittal South Africa (AMSA) stakeholder management and communications group manager Tami Didiza writes about the state of the South African steel industry, trade protection measures and AMSA's investment in its own facilities, as well as its support for the downstream steel sector.

Imported steel products continue to impact the viability of the South African steel industry. Each tonne of steel produced domestically adds to the national economy, creates jobs and provides value through beneficiation. It is estimated that it would take more than a decade to re-establish an integrated steel industry in South Africa were it to disappear. This would be detrimental to the South African economy in every sense.

Contrary to the assertions of some in the industry, the protection measures implemented by the South African government are in place to protect the entire South African steel manufacturing sector and not just one player. These measures are vital for the survival of the country’s steel industry and for ensuring the steel sector remains the backbone of South Africa’s industrial manufacturing capacity and capability.

South Africa is not an outlier in terms of the protection measures we have instituted. Steel production is a crucial strategic competency, and most steel-producing countries have taken significant steps to protect their steel sectors against imports as per internationally agreed World Trade Organisation rules. Normal customs duties on steel imports are to be seen in more than 150 out of 200 countries worldwide and in almost all major steel-producing countries. About 135 countries have an average of 10% duty on South African exports to them, including China, which has a duty of 5% on South African imports.

The European Union, Russia, Turkey, the US, Canada, Brazil, Mexico, Japan, Korea, Taiwan, Vietnam and China have at least some forms of protection afforded to their local manufacturers, including anti-dumping duties, countervailing measures, safeguard duties and/or safeguarding quotas.

There must be adequate protection for the manufacturing industry against the unfair import of finished steel products which erodes the competitiveness of the manufacturing and fabrication capacity base of our country. South Africa's distance from the nearest steelmaking nations increases the risk to supply and poses challenges for importing due to long lead times and high transport costs. We must avoid the country becoming a steel importer, leaving the upstream and downstream industries at the mercy of the global steel market.

AMSA has assisted the downstream industry to compete against finished steel imports and has supported various efforts to obtain protection for the downstream industry. The assumption 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 simply incorrect. Many other factors impact the competitiveness of our local steel industry, not least of which the availability, reliability and cost of logistics and electricity.

Thanks to stronger sales volumes and the benefit of robust price-cost effects, AMSA achieved positive half-yearly earnings before interest, taxes, depreciation and amortisation and a headline profit for the first time in a decade in June 2021. This performance was achieved against the backdrop of one of the most challenging operating environments in the company’s long history.

AMSA has taken a very conscious, responsible and well-considered decision to invest in certain key fixed-cost areas. This was extended to encompass targeted capital investment, both incurred in 2021 and allocated for 2022. This additional fixed-cost and capital investment is directed at improving reliability and quality, further enhancing environmental compliance, and targeting growth opportunities.

As a result, despite the challenges, the company’s income statement shows a positive trend of steadily increasing investment in maintenance. In 2021, in addition to the significant restorative maintenance programme, in November and December the company undertook significant refurbishment projects at both its Vanderbijlpark and Newcastle plants.

To assert that the company is not investing in its production facilities in favour of profit for its shareholders is simply not true. After safety, production reliability and stability to enable improved delivery to the company’s customer base are key focus areas. To deliver against these objectives, efforts continue to attract new process and maintenance-related skills and to develop existing skills through specialised training programmes, all supported by a refreshed and more structured management system. 

On the issue of pricing, AMSA's flat steel product prices are determined by the fair-price basket mechanism agreed with the South African government and which is closely monitored. The company’s long steel product prices are aligned with local market conditions since AMSA is not the only long steel producer in South Africa. The sudden increase in global pricing means that steel costs more, whether you buy within South Africa or import.

AMSA enjoys good relations with most of its customers and there is regular engagement at various levels within the business to discuss specific customer needs and industry challenges. Also, as one would expect of a business the size and nature of AMSA, the company regularly meets with government on ways to protect, develop and sustain a thriving steel industry in South Africa. Businesses should be supported to assist in funding projects that support South Africa’s economic growth, and government should be encouraged to bring them to market expeditiously and transparently.

For South Africa not to protect its steel production, steel-related manufacturing and industrial capability, as it emerges from the significant economic impact of a lockdown, will be disastrous for the industry and the economy and will limit the ability of the sector to contribute to the country’s reconstruction and recovery plan. The goals of economic growth, increased employment, increased beneficiation and certainty of supply are laudable and to South Africa’s enduring benefit.  

Edited by Creamer Media Reporter

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