Davies gets ball rolling for more protection against cheap steel
Trade and Industry Minister Rob Davies has signed off on a proposal for steel safeguards that aim to further restrict a glut of mostly cheaper Chinese steel imports into SA. This will soon be on its way to the World Trade Organisation (WTO), he says.
The tariffs will add heft to a 10% tariff imposed on foreign imports — which primary steel producers say does not adequately protect the sector. The industry has submitted applications for safeguards on hot-rolled coil and cold-rolled coil, which are the basis of many industrial products.
Davies has given no figure for the proposed duty. He only says that earlier South African tariff measures have been relatively modest compared with other countries.
However, Gerhard Papenfus, CEO of the National Employers’ Association of SA, says it is 12%, according to the government’s WTO applications. He also says the decision by the government is in conflict with the findings of the International Trade Administration Commission, a statutory body that advises the state on the effect of import duties on industries.
The primary steel industry in SA has teetered on the edge of collapse in the aftermath of the global financial crisis and also the ending of SA’s hosting of the 2010 Soccer World Cup. The precipitous fall left many of the giants of SA’s listed construction sector — which takes more than 50% of domestic steel output — flirting with penny-stock status, along with the country’s largest steel producer, ArcelorMittal SA.
The overall crisis came from a mixture of a slump in global infrastructure projects after markets crashed in October 2008 and a subsequent collapse in global steel demand.
But some of the state’s actions and policies worsened the malaise. These include a protracted black economic empowerment battle over ArcelorMittal SA’s partial mineral rights held at Kumba’s Sishen iron-ore mine and a Gupta-linked company called Imperial Crown Trading.
After the 2010 World Cup, the state also switched infrastructure development to much smaller projects, leaving large construction companies bereft while they were negotiating with the government over selling large stakes of themselves to black empowered companies.
In the interim, things have gone from bad to worse. Former ArcelorMittal SA CEO Paul O’Flaherty predicted a “bloodbath” in the steel sector if the government did not act appropriately. With recent losses approaching R10bn, the subsidiary of the Luxembourgbased ArcelorMittal group eventually cobbled together a broad-based black economic empowerment deal. This is so new that it is difficult to judge whether it will help alleviate the industry’s dire status.
ArcelorMittal SA is responsible for about 80% of SA’s primary steel production, after its Russian-backed counterpart, Evraz Highveld Steel & Vanadium, went bankrupt. O’Flahertry warned in late 2015 that the domestic industry needed anti-dumping duties of as much as 30%-60% on some Chinese products. US sanctions on such products were up to 10 times higher.
Davies also told delegates in Sandton on Monday at the rollout of the ninth iteration of government’s industrial policy action plan that Economic Development Minister Ebrahim Patel would by the next budget announce financial support for downstream steel producers.
This would be through the Industrial Development Corporation and involved a specific incentive for downstream steel and also agro-processing.
The application to the WTO for steel safeguards will take time, as SA must comprehensively prove the damages caused to the industry by cheap imports. This means that SA’s remaining primary steel makers will continue to struggle along. Davies says primary steel production cannot be allowed to evaporate.
With Evraz Highveld Steel & Vanadium gone, ArcelorMittal SA has signed a manufacturing agreement to supply blooms to Evraz Highveld’s closed structural mill for processing into heavy structural steel. But this is still subject to conditions in the Evraz business-rescue plan. It is also dependent on the implementation of duties on the products. The application has been submitted to the International Trade Administration Commission.
THE PRIMARY STEEL INDUSTRY IN SA HAS TEETERED ON THE EDGE OF COLLAPSE IN THE AFTERMATH OF THE FINANCIAL CRISIS