Downstream steel users still struggle against cheap imports
WHILE tariffs have helped ward off a collapse of South Africa’s steel industry, ArcelorMittal, the country’s biggest producer, says downstream manufacturers are still in trouble.
The problem for these manufacturers was that the prices of imported final products were lower than what the products cost to make locally, said Wim de Klerk, CEO of the steel maker, which is controlled by Indian billionaire Lakshmi Mittal.
Manufacturers of automotive, heavy-machinery and construction products get their steel from ArcelorMittal South Africa, which has about 70% of the South African market.
Macsteel Services Centre SA CEO Hannes van der Walt said the fact that the safeguard duties protected only the primary steel industry and not products manufactured by the downstream industry would have a spiralling effect, and less steel would be consumed locally.
This had caused “a lot of companies to rethink whether they stay in South Africa or put up plants in other countries”, he said.
With low production and weak infrastructure growth “very little is ticking off and I’m not sure there is any steel company making satisfactory returns or money”.
He said that with wage negotiations due to start in July, any strike would raise the risk of job losses.
“With duties coming in and high demands from unions for wage increases, we are in for a very tough time.”
Van der Walt said that he did not see any significant changes in the next two years.
In the long term, the increase in tariffs would kill the downstream industry, although it was helping ArcelorMittal South Africa in the short term.
“If I import pieces of steel from China there is 22% duty on it. We squeeze the local manufacturers.
“The paperwork and the loopholes . . . to get duties on finished goods are just too much work,” Van der Walt said.
ArcelorMittal South Africa received a 10% tariff and would get an additional 12% in July. The company planned to apply tariffs to protect more of its products.
De Klerk said: “We will consider now the CRC [cold rolled coil]. There is still a surge of this because it took us six months to prove to government that we need it for HRC [hot rolled coil] and we will enter that process on CRC now.”
CRC is used in construction and heavy machinery and HRC is used in staircases.
ArcelorMittal South Africa said rand strength over the past few years had also hurt the industry. The steel producer did not benefit as much from a rise in iron ore and coal prices, although its dollar prices have been increasing.
The rand strengthened 15% over the past year while iron-ore prices rallied on higher Chinese demand.
ArcelorMittal South Africa said its long steel products, which come from its Newcastle plant, did not have the protection that the flat steel products of Vanderbijlpark enjoyed.
“We found ourselves to be in this weak economy desperately struggling to sell the products that we make, plus the imports of those products — wire, rebar — and all products you know of is significant. The imports have really surged and we are worried about the business,” De Klerk said.
Vuyolwethu Bokwe, director of smaller rival Afro Capital Steel, said although the steel industry was not doing well, companies were surviving thanks to a few big projects.
She said that her company was not affected by the imports because the clients they dealt with were specific on the type of product they wanted and the steel to use.
Bokwe said that the issue of buying primary steel was the fact that prices were fluctuating monthly.
“The Chinese have tarnished the market but for the local content the government has helped a little.
“If government would continue to be stringent and really make it hard it for people to import we would really see a revitalisation in the manufacturing industry,” she said.
I’m not sure there is any steel company making satisfactory returns or money