BETWEEN THE CHAINS SIKONATHI MANTSHANTSHA

On the same day as local steel giant ArcelorMittal SA (Amsa) put more than 8 000 t of excess steel products on auction, SA’s second-largest steel maker, Evraz Highveld Steel & Vanadium, announced it would cease operations at its main operation in eMalahleni (Witbank) until the market turned for the better. Evraz Highveld filed for business rescue after falling on hard times three months ago and its shares have been suspended on the JSE since April. “It is the intention of the company to resume production once adequate funding [for working capital] has been secured and steel trading conditions have improved to ensure sustained future financial viability,” says Evraz Highveld.

Local steelmakers are struggling to make ends meet in the current environment of reduced domestic demand in steel, mainly because of a significant increase in Chinese imports and poor international selling prices. (See page 35.)

Evraz Highveld is predominantly owned by Moscow-based Evraz, a vertically integrated steel, mining and vanadium business with operations across the world. It bought its 85% stake from Anglo American in 2006 and sought to sell the business in 2013 but failed to find a buyer as metals prices sank.

I don’t mean to be a prophet of doom, but the time for Evraz Highveld to resume operations — in its current form — may never come. There’s just far too much steel available in the market, being sold at unsustainably low prices.

Next month the business rescue practitioner now in charge of Evraz Highveld will publish a plan to rescue the company, but investors should not hold their breath. The only way the business will survive is to find and sell a product that people want, and charge a price that is market related. SA has not been consuming any significant amount of steel for the past seven years, and local production levels are the lowest since 2003. We have been de-industrialising on a large scale. Steel is the bedrock of industrial development. Investment in steel companies is worth only a fraction of the 2008 value. This predicament is not unique to Evraz Highveld. ArcelorMittal SA (Amsa), which also has a global mining and steel conglomerate as its majority shareholder, is also under pressure. This week it had to put “excess stock” out to tender with WH Auctioneers.

We have not seen anything like this before. All kinds of steel products were still being offered at reduced prices at the time of writing. This is what happens if no buyers venture into your shop.

Amsa had to ask government two months ago to impose a 10% import levy, mainly on cheap Chinese steel products. China has had to find new customers for its government-subsidised steel producers, as growth has been slowing at home.

An engineer at Atlas Copco, a global producer of industrial machinery, tells me the organisation has been importing steel products from China for the past three years at only a quarter of the Amsa price. So it is cheaper for SA manufacturers, shipping costs included, to import from China than to buy from Amsa, only a few hours away. Rumours doing the rounds are that parent Arcelor Mittal is also looking for a buyer of its controlling stake in the SA business. But I doubt an abundance of buyers will line up for Amsa.

This is not the first time Chinese-subsidised merchandise has flooded the SA market. The local textile industry died a slow death due to the dumping of low-cost Chinese materials, and government did little to stop it.

Steelmakers are staring the same fate in the eyes, and this time around the state is making it even easier to put the nail in the coffin. The Industrial Development Corp, also a large shareholder in Amsa and Evraz Highveld, is helping a Chinese steel firm to build a new steel plant in SA at a cost of R3bn. ArcelorMittal SA puts “excess stock” out to be auctioned online