SA’s steel sector and the struggle for survival It was an unthinkable question just a few years ago, but many are now asking: can SA’s steel and engineering sector survive, or will it join TV manufacturing as a museum piece in the industrial history of th
domestic steel production dropped 3% in 2015, the third successive year of decline. The sector lost another 11 100 jobs and many producers are burning reserves as they clock up losses. SA’s steel plants are running at 75% capacity, well below the 85% benchmark required for a healthy industry. If this continues, more jobs will be shed, says Henk Langenhoven, chief economist for the Steel Engineering Industries Federation of Southern Africa (Seifsa).
A new report from Seifsa called State of the Steel & Engineering Sector: 2016-17 paints a sad picture of a sector in decline. A global steel glut has lowered prices and slaughtered margins, prompting the department of trade and industry to hike tariffs to 10% for a wide range of imported steel products. Steel imports in 2015 totalled an estimated R376bn, up from R338bn in 2014. This represents an import penetration ratio of 53%, up from 46% in 2014. However, when the rand depreciation is discounted (higher import prices), then imports actually fell (in volume terms) by nearly 12%, according to the Seifsa report.
“The fact is that the commodity super cycle came to an end in 2011 and the down phase has been in progress since. All indications are that at least another five years of subdued growth can be expected, resulting in mining investment decisions on expansions and exploration being drastically curtailed,” says Langenhoven.
SA produces 7.2m tons of crude steel a year, a mere blip on the global radar. Global steel capacity at the end of 2015 was about 2.6bn tons a year, with surplus capacity currently sitting at 0.6bn tons, according to the Seifsa report. The result is a glut of cheap steel on the world market,
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