Urgent need to address steel industry ‘tilt’
‘Almost farcical’ protection of primary producer dents sector
● The precarious state of South Africa’s steel industry is being robustly debated and the roles of the three key stakeholders — the government, the primary steel producer/mill and the suppliers and manufacturers comprising the downstream industry — intensely scrutinised.
Lack of investment in major infrastructure, by both the government and by the primary producer, has seen a severe decline in the local steel sector.
The severity of the situation prompted the Southern African Institute of Steel Construction to hold an industry mobilisation meeting in Johannesburg this month, to which all major stakeholders in South Africa’s steel industry were invited to discuss:
A low-growth economy (fewer projects, ● less work, less steel);
The political, legal and policy environment ● (which affects the economy and the steel industry); and
The steel industry “ecosystem” and its ● competitiveness locally and abroad.
Under the auspices of the institute, and with Allied Steelrode’s driving support, it was decided at the meeting to gather the leadership of both steel suppliers and manufacturers into a body to be known as the CEO task force, to galvanise the industry’s thinking and encourage role-players to speak with a united voice. The task force will engage robustly with senior levels of the government on policy pledges and tariffs in partnership with all stakeholders.
There needs to be greater transparency among the various participants in the steel industry. However, as companies are in survival mode — squeezed by the combined challenges of lack of demand, overcapacity and the almost farcical protectionism in favour of the primary producer — there has been pervasive low morale and a co-operation logjam.
In addition, Competition Commission concerns make steel majors extremely cautious about co-operation being misperceived as collusion.
The CEO task force meets this week to address the co-operation impasse, gather pertinent information and resources and prepare to actively lobby key stakeholders such as the government and the primary producer on behalf of the downstream sector.
One key aspect of this will be around protective tariffs.
There is concern in the downstream industry that the primary producer, which has an effective monopoly in South Africa, has taken advantage of these protective measures and edged up its prices by some 22%.
The “pricing basket” offered to the downstream sector is based on some of the world’s highest-priced producers, not the lowest — an unfairly skewed pricing model which makes South Africa’s downstream sector globally uncompetitive.
This lack of competitiveness has been evidenced in recent job losses in the steel sector, which are, according to the institute, in the region of 57 000.
Any downstream steel sector needs to be properly structured, and companies at the sharp end of the steel supply chain — not only merchants and value-adding processors,
Companies at the sharp end of the steel supply chain need to have a fair price advantage if they are going to continue in business
but the “smaller guys” such as fabricators making geysers, two-plate cookers and the like — need to have a fair price advantage if they are going to continue in business.
If, for example, a 25% import protection was implemented on any value-added product, in favour of the downstream sector, this would allow for desperately needed Proudly South African growth and economic viability, as well as improving the position of the primary producer, which would soon see vastly improved sales as a result of increased purchasing power.
Another key point that has been raised by the downstream sector is the challenge that it faces with ongoing pricing volatility. Pricing volatility poses an urgent challenge to the entire sector as predicting effective margins on future sales — crucial to sound procurement and pivotal to any business — is severely handicapped, with an adverse effect on steel majors and even more so on our downstream customers.
However, at present, we are denied volumetric and loyalty discounts and more reasonable credit terms, and are resorting to importing steel to meet their requirements.
With the reality of steel imports that compete favourably in terms of price and quality, the issue of local raw steel quality has to be raised. Tier 1 steel merchants have repeatedly claimed that the scrap factor in local South African supply is unacceptably high and erodes margins still further.
From the point of view of our own company, Allied Steelrode, we are committed, on behalf of our downstream customers, to making a leading contribution to the regeneration of the local steel industry.
In order to supply customers with competitively priced, quality product, we have made major investments in advanced steel beneficiation technology.
Contrast this with repeated calls on the primary steel producer’s overseas management to do the same, and to reduce the price of steel per ton year on year for the ongoing health of the sector.
In summary, we are not as an industry asking for handouts or unrealistic solutions. As an industry, we pride ourselves on a cando approach, which has historically fostered innovation, employment and economic growth — literally the backbone of steel within the South African economy.
What we urgently require is for measures to be put in place to redress the unfair imbalance within the steel sector.
This may be likened to the “fair chase” hunting principles, in which game are given a chance to free roam and survive within a balanced, natural ecosystem. Applied to the current steel industry, this would address the “fair pricing” model used by the primary producer — as well as the protective tariffs issues — in order to reintroduce a truly fair and levelled playing field for all.