Steelmaking countries scramble to counter Chinese dumping
AROUND the world, steel-producing countries are taking steps to protect domestic markets in the face of rising input costs and the decline of China’s industrialisation programme.
Allowing associated companies to fail could have consequences for the country’s economy that could be felt for decades.
The slowdown in China’s infrastructure programme has led to the world’s largest producer and consumer of steel products looking elsewhere to find markets for the steel it produces. Dumping of steel products produced at huge economies of scale has brought other makers to the brink of closure.
The UK parliament held a three-hour emergency discussion over the future of the UK steel industry this week, on news that international group Tata Steel, which has already cut 2 000 jobs in the UK, plans to sell its assets there.
Eurostat, the EU’s equivalent of Stats SA, said EU steel exports into the UK cost on average à897 a metric ton in 2014, while Chinese imports could be bought for just à583 a ton.
The EU put antidumping duties in place last year for six months. South Africa followed in the second half of last year with a 10% tariff on imports of some steel products, but rising iron ore prices — up about 35% this year — and coal prices, along with a weak rand, were the culprits behind price hikes for locally made steel, according to ArcelorMittal South Africa.
ArcelorMittal will deliver a production update on May 5, when the effects of the tariff may be visible.
The problem is that even as steel prices rise globally, ramping up production to meet demand does not happen quickly and stockpiles are being worked down. Ironically, that means imports continue to land in South Africa to meet demand.
ArcelorMittal acting CEO Dean Subramanian said he expected the backlog to persist until June for rebar and until mid-July for wire rod, after an increase in the order book since December last year.
Henk Langenhoven, chief economist of the Steel and Engineering Industries Federation of Southern Africa, said the increases in international steel prices might benefit local producers only temporarily.
“Apparently the Chinese have switched off their most unprofitable smelters, and when people got word of that it was like oil reserves — buyers started to PERSIST: ArcelorMittal SA acting CEO Dean Subramanian speculate by buying prices rose.”
Subramanian agreed that a recent increase in domestic demand could be due to some speculative buying, but “the major driver originates from de-stocking over the total value chain during 2015, as well as low supply from other primary steel mills over the December-January holiday period”.
Subramanian said this was likely a short-term situation, and that desired stock levels would be reached in the third quarter of this year, by which time the mills would have adjusted to real demand. before
He said import duties had played their role in switching demand to local suppliers.
“We believe it will be more quantifiable once the total portfolio is covered by duties.”
For Langenhoven, allowing local companies and communities that depend on steelmaking to suffer closure is unthinkable — a view backed by the International Trade Administration Commission of South Africa and the government.
About 200 000 jobs are connected to the industry. “If some parts of our local industry close, it will be permanent,” said Lan- genhoven. “There’s a difference between capability and capacity. Capacity might be low but you can keep the people and machinery.
“But to rebuild the Evraz plant would cost R30-billion. Some parts of the industry would be very difficult to restart.”
Langenhoven said the trade administration commission and the government had displayed a lot of sympathy, but a complete tariff structure might take three years to bed down. “There has been commitment by the ministers concerned that they will look favourably at the downstream players from ArcelorMittal — to see whether there’s scope for protection in the form of exemptions of rebates on their products.”
The trade administration commission will make a recommendation of downstream intervention in June.
Langenhoven said “well-positioned policy intervention” was on the way, but nothing in the government’s power could deal with weak global demand.
“Only metal products — one step after what ArcelorMittal produces — are seeing export orders rising. All the other components of the market are reporting drops in six-month orders.”
The Industrial Development Corporation, the second-largest shareholder in ArcelorMittal South Africa behind the global ArcelorMittal group (68%), has seen the value of its 8.2% stake shrink in the past five years. ArcelorMittal’s share has tumbled from R89.80 to R6.96 between April 2011 and now.
IDC spokesman Mandla Mpangase said the tariffs had brought some relief, but further intervention was needed upand downstream from ArcelorMittal. He agreed with Langenhoven that tariffs alone could not save the local industry.
According to both, some industry components should have invested in newer and more energy-efficient technology, because it appears that a global structural change in steelmaking will leave only the most profitable players standing.
Subramanian said that given the cost and profit constraints, he expected that there would be consolidation in the industry and that capacity would increase, rather than investments in new technology or product diversification.
If some parts of our local industry close, it will be permanent
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