Preserve steelmaking for when glut is over

THE steel crisis is intensifying. India’s Tata Steel, Britain’s largest steelmaker, has put its UK business up for sale to stem heavy losses, blaming high manufacturing costs, domestic market weakness and increased imports from countries such as China.

Most steel companies, including top producer ArcelorMittal, have been hit by plunging prices due to overcapacity in China.

According to the International Steel Statistics Bureau, China has produced more steel in the past three years than Britain has since the Industrial Revolution.

In South Africa, the most recent victim of the crisis is Evraz Highveld Steel & Vanadium, which shut its doors in February, shedding around 2 200 jobs.

South African steelmakers are bracing for a further increase in cheap imports in the context of a global steel glut and stronger measures by other countries to protect their steelmakers.

Should the industry collapse or need restructuring — with such steps as plant closures — this could threaten the government’s plans to reindustrialise the economy, as well as the very existence of the primary steel and downstream industries, affecting nearly 200 000 employees.

The steel industry has applied for the maximum 10% import duty on 10 product lines. This has been approved on eight. The two outstanding lines are hot-rolled coil and other bars and rods.

Protection is vital for the survival of South Africa’s steelmakers. Hotrolled coil is the foundation of many other steel applications and the primary product of ArcelorMittal South Africa’s struggling Vanderbijlpark operations.

The fundamentals of the domestic steel industry have not changed, but they need repeating here.

There is global overcapacity of about 240 million tons a year — driven by China, which prices its products below both South Africa’s and its own production costs due to government support of more than $50-billion a year.

Steelmaking is a strategic industry for South Africa, tripling the value of iron ore. It represents 1.5% of GDP and creates more than 190 000 jobs, plus 100 000 jobs through suppliers

Looking at steel operations in Vanderbijlpark and Newcastle, for example, this means that two-thirds of households there depend on the industry. Local suppliers to the industry would not survive without it. If the plants were to close, 66% of Vanderbijlpark and Newcastle residents would be unemployed.

Steelmaking is also core to two industrial ecosystems. Several key industries depend on a local steel industry, the top five of which contribute 15% of GDP and employ eight million people. South Africa’s National Development Plan is largely dependent on steel, which, if imported, would increase the trade deficit by about 1% of GDP.

Should the domestic steel industry dissolve, it would take more than 10 years to re-establish the capability.

In the short term, South Africa

If plants closed, 66% of Newcastle and Vanderbijlpark residents would be unemployed

needs to immediately implement the outstanding trade duties and safeguard investigations, which are extremely effective but take two to three years to implement.

For its part, the industry is committed to developing subsectors where the steel price has the largest socioeconomic effect. The fair price must stimulate the economy or generate exports and jobs.

South Africa needs steel — and global demand is set to double by 2050. South Africa needs to take a long-term view and formulate an effective industrial strategy.

There is a large imbalance between steel production and demand. However, in time there will be equilibrium and those countries that still produce steel will have an advantage. South Africa needs to be one of those countries.

Subramanian is the acting CEO of ArcelorMittal South Africa