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The DTI is not protecting the steel downstream

The DTI is not protecting the steel downstream

Engineering News recently reported that officials from the Department of Trade and Industry briefed the Portfolio Committee on Trade and Industry on the status of the Steel Industry and interventions that government was deploying to assist ‘the Industry to stay afloat’.

The Committee was also briefed on the establishment of a task team which intervened to save the Steel Industry from threats of closure and loss of capacity. The dti official also stated: “Following the establishment of the task team, there has been numerous short to medium term measures that have been put in place to support the steel industry. These include an increase in the general rates of customs duties on primary steel products to 10% and safeguard measures for a period of three years on hot rolled coil and plate products”.

An official of the dti also said “that there was an agreement on a set of principles for flat steel pricing in SA that is priced appropriately to ensure that steel-dependent industries are competitive. This is also aimed at ensuring that the upstream steel mills remain sustainable”.

There is one statement made by the dti before the relevant Portfolio Committee which we can agree with, and that is that the Steel Industry is in severe danger, even to the point of “collapse”. This part of the statement at least correctly acknowledges the current state of affairs.

The measures to protect AMSA (customs duties, safeguard duties, compulsory purchasing from AMSA by government departments and an AMSA-favouring pricing formula), which the dti has implemented:

  • is causing job losses in the sector; not averting them;
  • is saving AMSA (in the short term) from collapse; however, it severely prejudices the Steel Downstream, serving as a slow poison;
  • it does not save the Steel Downstream from the threat of closure and loss of capacity; it is causing the exact opposite. Only AMSA is benefitting, but only temporarily;
  • the customs - and safeguard duties do not benefit anyone (not a single company), other than AMSA;
  • the pricing arrangements do nothing to ensure that steel-dependent industries are competitive;
  • in fact, it is causing exactly the opposite and offers AMSA the opportunity to once again practice import price parity with the added advantage of up to 22 percent duties priced in; and
  • it is not ensuring that the upstream mills are remaining sustainable - it is only ensuring that AMSA remains afloat. However, again, only temporarily. Anti-market forces will not be able to save AMSA in the long run.

These protectionist duties are only applicable in South Africa and not in sub-Saharan Africa. This has rendered the South African Downstream totally uncompetitive and exports have dwindled substantially.

It was predicted that these duties will increase the importation of finished goods – this has now proved to be the case. This has a substantial impact on job creation and job retention.

If this was left to market forces, AMSA would have been forced to downsize, inevitably resulting in job losses. The Downstream, however, would have been able to take advantage of lower (imported) priced input material, which would have resulted in the Downstream being more competitive. This would have resulted in growth in manufacturing and exports and the tide of job losses experienced in the Downstream, which far exceeds the potential job losses by AMSA, would have been stemmed.

As was predicted, despite the so-called pricing agreement containing an embargo on price increases, steel is almost 50 percent more expensive today than what it was at the time of the introduction of the duties.

To even attempt to protect the Downstream with further duties, has been shown to be practically impossible to implement. Therefore, the only option which remains is to immediately remove all the duties protecting AMSA, failing which the steady decline of the Steel Industry will continue progressively.

This is a press release by Gerhard Papenfus, Chief Executive of the National Employers’ Association of South Africa (NEASA).

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