A TEST OF MET­TLE

Dif­fi­cult con­di­tions in the steel in­dus­try have put tremen­dous stresses on the down­stream sec­tor. But things may fi­nally be look­ing up

Financial Mail - - FEATURE - Siseko Njobeni njobe­[email protected]­nesslive.co.za

Warne Rip­pon, the son of a Gra­ham­stown bak­ery owner, al­ways knew he wanted to get into “some type of re­tail”. But it was cricket that brought him to Joburg in the early 1990s — a ca­reer de­ci­sion that was not to play out as planned.

He was, he says, “an av­er­age sports­man who as­pired to be a Spring­bok crick­eter”. And so he found him­self work­ing for a steel com­pany — an­other de­ci­sion that would take an un­ex­pected turn.

Be­ing re­trenched in 1993 pro­vided Rip­pon with the im­pe­tus to start his own com­pany. “I had to make a de­ci­sion: either I start my own busi­ness or try to find a job,” he says. A year later he founded trad­ing firm Steel­rode. “We started with one driver; one truck,” he says. “We have had to do things the hard way.”

To­day, Rip­pon is ex­ec­u­tive di­rec­tor of Al­lied Steel­rode — a “se­ri­ous player in the in­dus­try” — formed from the merger of Steel­rode and Arun Chadha’s Al­lied Chem­i­cal & Steel. The com­pany em­ploys 400 staff, and its fleet of ve­hi­cles in­cludes 30 heavy­duty trucks and trail­ers. An in­de­pen­dent steel mer­chant and pro­ces­sor, it sup­plies coils, slit strip, flat steel, steel press­ings, stan­dard sheets and cut-to-length blanks to cus­tomers in the man­u­fac­tur­ing, min­ing and au­to­mo­tive sec­tors.

In a bold move, it re­cently in­vested R500m in a stretcher lev­eller fa­cil­ity, al­low­ing it to pro­duce stretched and flat­tened steel for its cus­tomers.

“It was not an easy jour­ney for us,” Rip­pon says.

“But we have man­aged to grow this busi­ness and we are ex­cited for the fu­ture.”

It’s been a dif­fi­cult time for the down­stream steel in­dus­try in SA. The volatile steel price from dom­i­nant pri­mary pro­ducer Arcelormit­tal SA (Amsa) makes it dif­fi­cult for down­stream com­pa­nies to plan ahead.

Pro­tec­tion­ism in the pri­mary in­dus­try has also hit the down­stream mar­ket. In a move to sup­port the sec­tor, the gov­ern­ment in­creased the gen­eral rate of cus­toms on pri­mary steel prod­ucts to 10% and im­ple­mented safe­guard mea­sures for three years on hotrolled coil and plate prod­ucts. But down­stream com­pa­nies like Al­lied Steel­rode have com­plained that the du­ties, while meant to stem the tide of cheap steel im­ports, have only ben­e­fited up­stream pro­duc­ers.

A re­cent En­gi­neer­ing News re­port notes that the in­creased du­ties — in the face of cheaper Chi­nese pro­duc­tion — have made steel more ex­pen­sive for down­stream man­u­fac­tur­ers, which then bat­tle to com­pete against cheaper im­ports in the down­stream mar­ket.

A de­part­ment of trade & in­dus­try re­port to its par­lia­men­tary port­fo­lio com­mit­tee in June notes that man­u­fac­tured steel prod­uct im­ports were up more than 250% in the

2000-2016 pe­riod.

Al­lied Steel­rode has been vo­cal about the is­sues fac­ing the down­stream sec­tor — and about the qual­ity of steel com­ing out of Amsa. But the tide seems fi­nally to be turn­ing.

“We are cur­rently see­ing the first pos­i­tive signs for the down­stream steel sec­tor, which has been forced to con­sider a va­ri­ety of mea­sures such as con­sol­i­dat­ing op­er­a­tions to di­min­ish over­ca­pac­ity in an at­tempt to mit­i­gate the ef­fects of the eco­nomic slow­down this year,” says Rip­pon, who ac­knowl­edges the “host of macroe­co­nomic chal­lenges” the sec­tor still faces.

The gov­ern­ment has also taken ad­di­tional steps that may aid the down­stream sec­tor, for ex­am­ple es­tab­lish­ing a R1.5bn steel de­vel­op­ment fund, and pro­vid­ing tax in­cen­tives to boost in­vest­ment.

Amsa has also im­proved the qual­ity of its prod­uct, he says. “There ap­pears to have been a seis­mic shift to a more com­pet­i­tive mind­set from the mill, which is look­ing at the re­struc­tur­ing and up­grad­ing of its pro­cesses. In less than two years, the var­i­ous tar­iffs on steel are set to fall away and it is en­cour­ag­ing to see Arcelormit­tal fi­nally po­si­tion­ing it­self more pos­i­tively with its cus­tomers, so it will be able to pros­per in a fu­ture tar­iff-free en­vi­ron­ment.”

Not that Al­lied Steel­rode has al­ways called it right. “We be­lieved the SA economy would start im­prov­ing af­ter the 2008 melt­down,” says Rip­pon. “But [Ja­cob Zuma’s pres­i­dency] let us down. We thought the next steel boom would come in 2016/2017. We got it wrong … I think we have hit the bot­tom and are now start­ing to move up­wards.”

The com­pany is hope­ful its R500m in­vest­ment — se­cured through 80% bank fi­nance and 20% in­ter­nal re­sources — will pay off. The new stretcher lev­eller can process gauges from 3mm to 12mm in thick­ness. For now, though, Al­lied Steel­rode is fo­cus­ing on con­sol­i­da­tion.

Says com­pany CEO Chadha: “We had to plough back ev­ery­thing [into the com­pany]. We also did not [pay] any div­i­dends. It was a dif­fi­cult and ex­pen­sive jour­ney.

“But to­day we have a fa­cil­ity that I can proudly say is one of the best in

the world.”

We thought the next steel boom would come in 2016/2017. We got it wrong … I think we have hit the bot­tom and are now start­ing to move up­wards Warne Rip­pon

Al­lied Steel­rode’s Arun Chadha and Warne Rip­pon

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