By Gerhard Papenfus
Although it is unfortunate that it has come to this, the reality is that, in respect of protectionist duties on steel imports, government will have to choose between the protection of an unprofitable, struggling ArcelorMittalSA (AMSA), employing 9000 employees, or breaking the strangle hold that these duties have on the steel downstream (in many sectors), employing in excess of 500 000 employees.
The protection of AMSA by means of import (custom- and safeguard) duties, which is slowly squeezing the life out of downstream manufacturing, simply has to stop. It cannot be expected of downstream manufacturing to be the casualty of AMSA’s salvation.
In the recent document on “Economic transformation, inclusive growth and competitiveness – towards an economic strategy for South Africa”, prepared by the Economic Policy Department of National Treasury, stringent criticism is expressed towards the International Trade Administration Commission’s (ITAC) consideration of trade measures on a case-by-case basis through applications, which lends the process to an inherent bias towards larger firms.
AMSA’s most recent application for more duties, also in respect of products they do not even manufacture, and the current consideration thereof by ITAC, falls squarely within the context of Treasury’s criticism.
AMSA’s application and ITAC’s consideration thereof, is not only evident of ITAC’s utter contempt for the plight of the steel downstream, but also its contempt towards the criticism expressed by Treasury. They simply stampede over the current steel crises as if it does not exist.
As a result of this latest application, the economist Mike Schüssler was recently tasked to conduct an impact-study on the effect of the current and proposed duties on steel products.
His findings support the view that all duties should be scrapped. This report confirms, among others, the following important facts:
- the cost of AMSA’s ‘raw material basket’ (iron ore, coking coal and scrap metal) is cheaper than the world average and 18 percent cheaper than the price paid by China;
- AMSA’s steel is between 18 and 27 percent higher than the average world steel price and the price of China’s steel; and
- notwithstanding the 20 percent protectionist duties, AMSA remains unprofitable.
Although many factors contribute to AMSA’s inability to compete with the world’s successful steel mills, much of it is as a result of its own excessive operating expenses, particularly its antiquated steel mill.
AMSA’s difficulties are further confirmed by the news that:
- AMSA’s liquid steel production decreased by 18.2% year on year (which is not surprising since they have declared war on their customers);
- they incurred losses of R638 million in the first half of 2019; and
- AMSA has decided to wind down its steel operations at Saldanha, which have been suffering “severe financial losses.”
AMSA indicated that nothing could be done to save its Saldanha operations, not even lower electricity prices. We are of the view that the same applies to AMSA’s national operation. Import duties, although it is having a devastating impact on the steel downstream, will not save AMSA. It simply presents South Africa with a lose-lose scenario.
South Africa needs to start preparing for the post-AMSA dispensation.
The issue under discussion is not of an anti-AMSA nature; it concerns the duties protecting AMSA. A primary steel producer has a place in the South African steel market, providing that its presence is not to the detriment of the steel downstream, but makes a positive contribution to the growth of the sector. In AMSA’s case the opposite applies.
It is for AMSA to be the master of its own salvation. That cost cannot be carried by the steel downstream.
Gerhard Papenfus is NEASA’s CE