Steel sector thrown import tariff lifeline
TRADE and Industry Minister Rob Davies gave the steel industry a last-minute reprieve on Friday when he approved a 10% import tariff on steel.
But “giving them this tariff does not mean we will be giving them the green light to raise prices”, Davies told Business Times. “We need affordable steel production in the country.”
His comments reflect a decades-long fight between the government and the steel industry, mainly with ArcelorMittal SA, which inherited a near monopoly when it bought Iscor.
The government has been asking the industry for “developmental” or “fair” prices for steel for years.
ArcelorMittal SA CEO Paul O’Flaherty said the industry was negotiating a pricing model with the government.
However, with conditions attached to the steel tariff the government may have some sway in influencing pricing. Conditions included that there would be no price increases for galvanised steel, aluminiumzinc-coated steel and colourcoated steel, and existing commitments to reduce prices on some products had to be honoured, the Department of Trade and Industry said.
ArcelorMittal SA has to invest R250-million in its colour line and Safal Steel will invest R300million in its metal-coating line in 2017. Neither ArcelorMittal SA nor Safal can retrench staff who make the products to which the tariff applies.
The International Trade Administration Commission will monitor the impact of the new tariff and make sure companies comply with the conditions.
Steel companies are also preparing to submit applications in the coming week for antidumping protection against certain steel products from China. This could put in place custom duties of 40% to 50%.
Fortune has turned for ArcelorMittal SA, which in 2008 raked in R9.3-billion in profit but reported a R254-million loss in its latest results.
It is fighting a losing battle against cheap Chinese imports and falling prices. Steel prices have fallen about $200 (R2 600) a ton over the past year, while China floods the market with cheap steel.
Chinese-made steel arrives in South Africa at 12% below the price of producing steel here. At the heart of the problem is China’s ability to produce 1.1 billion tons of steel a year — more than China’s total demand and almost 30% more than global demand.
Even if China stopped making steel, analysts say, its stock could hang over the global market for a few years.
China’s steel production has benefited from favourable funding costs, subsidised electricity, export credits, tax rebates and subsidies for research and development.
Many of the large steel producers are government owned and do not have to make profits to survive. Despite signs of a slowdown in China’s own market and globally since 2012, production capacity expanded.
The sector has been losing money since 2012 and, with local governments averse to cutbacks in output and jobs, there is no pressure even to close old, inefficient and environmentally destructive capacity.
Giving them this does not mean we will be giving them the green light to raise prices
Most of the 65 steel-producing countries have levied steel tariffs to protect against cheap Chinese steel, and South Africa has finally followed suit.
O’Flaherty said he hoped the customs duties would come into effect in the next three months.
Anti-dumping tariffs would be in addition to the 10% import duty, which means the cost to downstream steel consumers could go up by more than 20%.
Garth Strachan, the Department of Trade and Industry’s chief director of policy, said the department was intent on ensuring that curbs on cheap imports would not pass problems on to downstream users. “We can’t secure the future in a way that pushes the problem down the chain.”
The talks appear to involve most of the links in the chain — ArcelorMittal, mini steel mills, steel intermediaries, distribution companies, scrapmetal mills and exporters.
“We want to craft a solution that saves the country’s capacity to produce steel at a competitive price,” said Strachan.