Trump tar­iffs to fur­ther ham­mer SA’s crip­pled steel and alu­minium sec­tor

Pleas that coun­try also suf­fers from China dump­ing ig­nored

Sunday Times - - Business News - By RAY NDLOVU

● A R3.4-bil­lion loss is what South Africa’s steel and alu­minium in­dus­try stands to in­cur af­ter US Pres­i­dent Don­ald Trump re­jected the coun­try’s bid to be ex­empted from steel and alu­minium tariff hikes.

More­over, an es­ti­mated 7 500 work­ers could lose their jobs in the steel in­dus­try.

Glob­ally, Trump’s tar­iffs are seen as a move that could pro­voke a trade war with China.

The tariff hike on South Africa, which takes ef­fect on June 1, is meant to pro­tect the US mar­ket from the glut in steel sup­ply in favour of its own in­dus­try.

This will put fur­ther strain on the steel in­dus­try in South Africa, which has been in a slump for the past few years. The boom days of the 2010 Soc­cer World Cup are a dis­tant mem­ory.

Steel de­mand has dropped sig­nif­i­cantly, in line with South Africa’s stalled in­fra­struc­ture growth pro­gramme and eco­nomic growth slow­down.

Michael Ade, the chief econ­o­mist at the Steel and En­gi­neer­ing In­dus­tries Fed­er­a­tion of South­ern Africa, said the US’s re­jec­tion of South Africa’s ap­pli­ca­tion for ex­emp­tion was a trav­esty.

“The procla­ma­tion by the US will di­rectly cost South African ex­porters roughly R3-bil­lion worth of steel prod­ucts and R474-mil­lion worth of alu­minium prod­ucts,” Ade said.

“This will not only starve the lo­cal in­dus­try of for­eign cur­rency, but it will also have a neg­a­tive im­pact on the coun­try’s for­eign re­serves.

“A fur­ther dis­rup­tion on trade will in­clude pos­si­ble re­duc­tions in the quan­tity of steel and alu­minium prod­ucts ex­ported to the US as lo­cal com­pa­nies seek al­ter­na­tive ex­port mar­kets, thus neg­a­tively af­fect­ing ex­ports com­pet­i­tive­ness.”

The Depart­ment of Trade and In­dus­try said that South Africa was “dis­ap­pointed” that it had not been granted ex­emp­tion from the du­ties of 25% on steel and 10% on alu­minium prod­ucts.

Trade and In­dus­try Min­is­ter Rob Davies said South African of­fi­cials had made sev­eral rep­re­sen­ta­tions to au­thor­i­ties in the US over the tar­iffs and handed in two writ­ten sub­mis­sions.

In its sub­mis­sions, South Africa ar­gued that it was also hard hit by the global glut of steel, es­pe­cially the cheap im­ports from China, just like the US. China is the world’s largest steel pro­ducer.

The World Steel As­so­ci­a­tion, in its lat­est re­port pub­lished for the short-range out­look, pub­lished last month, fore­casts that global steel de­mand will reach 1.6 bil­lion tons in 2018, an in­crease of 1.8% over 2017.

In 2019, it is fore­cast that global steel de­mand will grow by 0.7% to reach 1.62 bil­lion tons.

The re­port also said the out­look for steel de­mand in the US re­mains ro­bust on the back of strong eco­nomic fun­da­men­tals, specif­i­cally strong con­sump­tion and in­vest­ment due to high con­fi­dence, ris­ing in­come and low in­ter­est rates.

“The man­u­fac­tur­ing sec­tor is be­ing sup­ported by a low dol­lar and in­creas­ing in­vest­ment while ris­ing hous­ing prices and steady non-res­i­den­tial sec­tor growth point to a healthy con­struc­tion sec­tor,” it said.

In a re­search brief­ing re­leased this week, Ox­ford Eco­nom­ics said it at­tached “a rel­a­tively low prob­a­bil­ity to a fully fledged trade war” be­tween the US and China.

In March, when the pro­posed tar­iffs were first an­nounced, car man­u­fac­tur­ers in South Africa said they were un­likely to have any im­me­di­ate im­pact on their op­er­a­tions.

This was be­cause the new reg­u­la­tions tar­geted pri­mar­ily raw steel prod­ucts and not fin­ished prod­ucts.

Con­cern among lo­cal steel in­dus­try play­ers re­mains high that the US could still use the steel tariff hike as a spring­board for tar­iffs on fin­ished steel prod­ucts.

The US is a small but im­por­tant mar­ket for South African steel mak­ers.

Ac­cord­ing to fig­ures from the South Africa Iron and Steel In­sti­tute, to­tal do­mes­tic ex­ports of pri­mary steel prod­ucts to all coun­tries in 2017 came to 2.4 mil­lion tons, or about 35% of South Africa’s es­ti­mated pri­mary steel out­put of six mil­lion tons.

The value of these ex­ports was about R26-bil­lion, of which the US ac­counts for only 10%.

The largest steel maker in the coun­try, ArcelorMit­tal South Africa, with about 70% mar­ket share, dis­patched only about 70 000 tons of pri­mary steel prod­ucts to the US last year, amount­ing to less than 2% of its to­tal sales.

“ArcelorMit­tal South Africa’s pri­mary mar­kets re­main South Africa and Africa over­land,” it said.

This will also have a neg­a­tive im­pact on the coun­try’s for­eign cur­rency re­serves Michael Ade Chief econ­o­mist, Seifsa

Pic­ture: AFP

A worker han­dles steel cable at a fac­tory in Lianyun­gang, in China’s east­ern Jiangsu prov­ince. The first salvos in the bud­ding US-China trade con­flict struck old-school sec­tors such as steel and agri­cul­ture.

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