Treasury acts to fortify steel industry
The Treasury has designated fabricated structural steel with 100% local content for procurement by state entities, in a move that might protect the domestic industry from a “blood bath”.
The instruction note, dated January 13, is a long-awaited development that could kickstart large-scale infrastructure projects in SA. It is also a nontariff response to the financial crisis that decimated the world’s steel industry.
Europe and the US have imposed huge antidumping duties on Chinese steel imports.
The Department of Trade and Industry’s (DTI’s) designation of preferential procurement is aimed at strengthening and diversifying SA’s industrial base. Until now, designated steel use has included power pylons, railway rolling stock and buses.
The addition of structural steel might breathe new life into the domestic steel sector. Since the end of SA’s 2010 Soccer World Cup, the construction
industry — which uses up to 50% of all domestically produced steel — has languished.
“We have been advocating designation on fabricated structural steel for almost three years now. It has been a long process, which has been run by the DTI metals desk,” Paolo Trinchero, CEO of the Southern African Institute of Steel Construction, said on Wednesday.
He said manufacturers of structural steel products, the metal cladding and roofing industry, wire product manufacturers and manufacturers of windows and doors would benefit, including upstream mills such as ArcelorMittal SA, Scaw Metals and Cape Gate.
“If you go back a year or so, the DTI approved designation in principle, but it needed to go through other government departments such as [the] Treasury,” he said. “I think it is this process that has taken time cou- pled with all the other initiatives in the industry,” Trinchero said.
Such initiatives stretch back to August 2015 when an unusual alliance of labour and business called on government to adopt 10 “core collective demands” to prevent job losses. Among these were the imposition of tariffs on cheap steel imports from China; the designation of steel for government infrastructure spend and the “urgent roll-out” of the state’s 18 strategic integrated infrastructure projects.
In response to the crisis, the government established a steel task team involving several departments and institutions mandated by the state. Since then, local steel products have been given 10% basic tariff protection, but the sector wants safeguards of at least 30%.
The designation comes as SA’s second-largest steel maker, Evraz Highveld Steel & Vanadium, is in the process of being liquidated. ArcelorMittal SA, by far the country’s biggest producer, has spoken of a “blood bath” in the industry. It reported a loss of R8.6bn in financial 2015.
Garth Strachan, the deputy director-general of the industrial development division of the Department of Trade and Industry, said the designation was to raise the aggregate demand in SA’s primary steel industry, while monitoring costs and prices. SA could not afford to lose its primary steel-making capabilities, nor its downstream metals industry.
ArcelorMittal SA CEO Wim de Klerk said that it was great news for the downstream industry. “At ArcelorMittal SA, we always believed this was vital to the resuscitation of the entire industry. The decision by the DTI is a clear indication that government has taken cognisance of the challenges.”