Steel industry pleads: scrap import tariffs

SA’s steel industry is up in arms over tariff protections provided to floundering ArcelorMittal SA (AMSA), accusing the department of trade, industry & competition of collusion with the steel giant at the expense of downstream players. This comes as AMSA lobbies for further protection by way of a 41% duty on certain steel products.

SA’s steel industry is up in arms about continued tariff protection provided to floundering ArcelorMittal SA (AMSA), accusing the department of trade, industry & competition of collusion with the steel giant at the expense of downstream players.

This comes as AMSA, which is reportedly said by customers to be failing to supply enough steel to the local market, lobbies the government for further protection by way of a 41% duty on certain steel products.

Historically a steel exporter, SA became a net importer at the beginning of 2020 as the market experienced a flood of imports, despite a plethora of protectionist trade measures introduced to curb the influx of foreign steel.

The steel sector, which contributes about 1,5% of GDP and employs nearly 200,000 people, has been on the ropes in recent years, with the broader metals and engineering industry shedding about 50,000 jobs in the past decade. Industry players blamed its decline partly on the protection offered to AMSA.

In a round-table discussion this week hosted by Duferco Steel Processing (DSP) — a hotrolled coil beneficiation facility close to ArcelorMittal’s Saldanha Steelworks that exited the SA market in 2020 to exclusively export its steel products — many players in the contracting steel sector denounced the price and unavailability of steel in SA that resulted in a surge of imports.

Steel manufacturers participating criticised “monopolistic” behaviour of AMSA, the largest steel producer in Sub-Saharan Africa, and the lack of communication from the department of trade, industry & competition on issues raised around pricing and supply of steel.

“We are sitting with one primary steel manufacturer here that is supplying the downward stream and competes directly with them,” said Francois Dubbelman of trade consultancy FC Dubbelman and Associates.

He said the government and AMSA colluded so AMSA can keep the 10% protection. This should not be the case, especially if there is one benefactor.

The government granted AMSA’s request for duties on most primary steel products to be moved up to 10% in 2017. Local producers said that AMSA could not keep up with demand, forcing them to import cheaper, usually lower-grade steel.

Downstream users have long argued that they operate at a disadvantage as they have to buy steel at uncompetitive prices from AMSA to make their products, which generally enjoy no import protection, and struggle to compete with imported finished goods made mainly from cheap Chinese steel.

“You’ve got to commit to their sales conditions, their volumes and their prices yet they don’t deliver on time,” said Anton Heunis, MD of Heunis Steel which produces galvanised steel and rainwater roofing.

Heunis likened business with AMSA as ‘a war” and said that if the 41% duty comes through, it’s going to cripple the steel industry because AMSA does not have the capacity to produce enough steel for the market.

Disputing claims against it, AMSA told Business Day it treats all customers equitably and fairly. This includes providing pricing for industries, accessible to all players in that industry.

However, Duferco CEO Ludovico Sanges criticised the government’s protection saying its only focus remains on protecting 50,000 jobs at AMSA and ignores 200,000 jobs in the downstream industry. He said businesses in the steel downstream are downsizing and closing at an unprecedented rate due to them not being competitive, partly as a result of the government enforcing import duties to protect AMSA.

The problem was aggravated by the envisaged closure of Saldanha Steel, in contravention of one of the undertakings AMSA made in exchange for the introduction of duties. When the state introduced the protectionist tariff one of the clauses was that AMSA give a developmental price to the rerolling and downstream industries. This was also intended to promote exports. Heunis said that never materialised. “The duties that have been introduced make the steel more expensive. Instead of developing the industry, the steel industry is actually shrinking.”

Responding to allegations that it did not uphold its end of the bargain, AMSA said it has in fact honoured its commitments regarding pricing to re-rollers.

“The fact that the company does not now supply steel to Duferco is due to commercial issues which Duferco has refused to resolve, not because of steel availability or delivery,” AMSA said. It said that Duferco has not purchased from ArcelorMittal SA since January 2022, while continuing to import subsidised steel.

Select Steel director Craig Parry referred to a disjointed pricing structure at AMSA, drawing data from the five most expensive regions in the world. Parry said the pricing was not current or real, as the cheapest supplier, China, was not included in this data.

“Some companies have closed due to lack of steel supply, while larger companies have to go on to shorter time because of shortages,” he said.

Heunis bemoaned ArcelorMittal previously discounted prices for the vehicle industry by about R4,000 a tonne while maintaining high pricing for the hardware sector. “If you think about it, the guy who is using galvanised steel to build a shack cannot afford a car, but he is paying R4,000 per tonne more for that material. The guy that can afford a car does not live on the breadline yet he gets the benefit from ArcelorMittal of a cheaper price,” said Heunis.

AMSA hit back, saying its flat product prices were capped in line with an international basket price agreed with the government in 2017. The group said it ensured that pricing took into account market dynamics and customer requirements, “in contrast to DSP who has abandoned its SA customers”.

The department of trade, industry & competition did not respond to a request for comment.

Steelmaking remains a key strategic industry for SA. According to the SA Iron and steel institute, SA’s production fell 42% by June compared with the previous matching period’s.

In the light of expected lower demand, it expects 2022’s total steel consumption to be 8,2% lower than last year’s, with all indications pointing to 25% of the usage being imported product.