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IOL News
06-05-2025
- Business
- IOL News
Government intervention crucial for a sustainable steel industry in South Africa
The government intervention to allow a deferral of the wind down of the AMSA Longs Business provides an opportunity for the fundamental structural issues facing the steel industry to be addressed, and to place it on a sustainable path by removing the market distortions that have been created. Image: Supplied By Tami Didiza Louis Brandeis famously coined the phrase, 'Sunlight is the best disinfectant'. Given the repeated willful misrepresentations peddled by the steel mini mill companies of the Electric Steel Producers Association (ESPA), it is in the public interest not only to set the record straight regarding their unfounded claims, but to reveal the inconvenient truth behind their operations. Before doing so, it may be useful to provide some context regarding the steelindustry. A sustainable steel industry in South Africa will be able to contribute to economic growth and job creation, support infrastructure development and contribute to the country's decarbonisation goals, while at the same time creating an opportunity for the development and export of greener steel. Unfortunately, the sustainability of the steel industry has been threatened due to national constraints such as high energy and logistics costs as well as the creation of a playing field that is not level, due to preferences such as a scrap export tax, scrap price preference system and preferential funding provided to the mini mill sector, all to the detriment of the rest of the steel industry. In light of the recent decision by ArcelorMittal South Africa regarding the closure of its Longs Business, the government has recognised the need for intervention and to work towards creating a level playing field to ensure a vibrant and competitive steel industry. It is therefore unfortunate that the recipients of these significant unfair advantages over a prolonged period should now express concerns about a 'distorted market' when funding has been made available to ArcelorMittal South Africa. The entire existence of the steel mini mills sector has come about at great cost to the Industrial Development Corporation (IDC) and the South African taxpayer. Some R14 billion of IDC money has been poured into the founding, operations and ongoing support for ESPA members. Additionally, a number of these companies have been unable tooperate successfully and could have closed had the current dtic policies of scrap intervention though the Price Preference System, Scrap Export Tax and an export ban not saved them over the last five years. Despite government support and protective policies, a number of ESPA member companies have still gone into financial distress. In addition to the significant IDC funding these mini mills receive a scrap steel subsidy of some R5-6bn per year –all of which is effectively funded by the producers (manufacturers, fabricators, etc) and collectors of scrap. Steel mills on the coast that operate in a Special Economic Zone benefit from an additional 10% discount in addition to a 30% PPS discount. They also benefit from investment incentives such as paying no corporate tax for 10 years, along with SARS/PAYE subsidy benefits. Critically, they are also the beneficiaries of lower electricity charges and import duties on steel products in the order of at least 10%. With respect to ESPA claims of job creation, regrettably the opposite is true, an estimated 50 000 scrap collectors have lost their jobs and income merely to fund a small number of mini mills. There is no scrap shortage in South Africa. The scrap reservoir of South Africa is abundant as the historical generation of steel has always been higher than the consumption of metal. However, scrap prices have been pushed to below the cost of salvaging obsolete scrap - resulting in lower scrap supply. Scrap is often found inland dumps in remote areas as it has been made economically unviable to collect and transport it to an ESPA mini mill. Were the ESPA mini mills to offer international scrap prices of R7 000 per ton, they would find abundant scrap available. This would increase jobs and boost the competitiveness of South African manufacturing industry. Unlike publicly listed steel producers who share their operations, financials, labour, and sustainability practices through public records and annual integrated reports, ESPA companies operate without publishing their results or opening their operations to public review. In addition to financial and operating aspects of ESPA mini mills that merit further examination, some questions have emerged about potential anti-competitive conduct that may warrant attention from relevant authorities. Greater transparency in the protected mini mill steel sector could potentially benefit the entire South African steel industry value chain, as well as consumers and taxpayers. It should be noted that mini mills are largely utilising scrap that can be used to support the country's decarbonisation efforts to produce largely low value products. In essence, the mini mills are induction furnaces with simple and basic technology in scrap melting that produces lower value-added products such as rebar and a limited range of commercial quality sections, which cannot be used for critical engineering applications. The limited product range is often exported as billets – in effect, this uses valuable electricity to make a product that is exported and beneficiated outside of the country, instead of maximising local beneficiation. The government intervention to allow a deferral of the wind down of the AMSA Longs Business provides an opportunity for the fundamental structural issues facing the steel industry to be addressed, and to place it on a sustainable path by removing the market distortions that have been created. Tami Didiza ArcelorMittal South Africa Group Manager for Stakeholder Management and Communications Image: Supplied Tami Didiza is ArcelorMittal South Africa's group manager for stakeholder management and communications. BUSINESS REPORT
IOL News
22-04-2025
- Business
- IOL News
ArcelorMittal South Africa faces challenges until government addresses regulatory issues
Large parts of the domestic steel industry were brought to their knees in 2024 due to inertia on the part of government, and regulations should have been more responsive to realities on the ground, said ArcelorMittal South Africa's chairman Bonang Mohale. In February, the country's biggest steelmaker announced plans to close its Longs Business, a move expected to result in the loss of thousands of jobs and severely impact the manufacturing sector. However, intervention by stakeholders including the Industrial Development Corporation (IDC) meant that in March, a decision was taken to operate the Longs business for a further six months. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ In the meantime, the government had committed to addressing structural problems including the Price Preference System (PPS) and scrap export taxes, as well as tariff measures including safeguards and others. Writing in the latest annual report on Thursday, Mohale said a particular burning issue during 2024 was the lack of action on the artificially low scrap pricing. 'Such is the prevailing scrap environment that it had the effect of unfairly subsidising our Longs business's competitors by more than R1 000 per ton, an unfair advantage that is almost certainly without parallel anywhere else in the world,' he said. He said the Chinese economy affected most of the world's steel industry again in 2024 through 'an unrelenting export of primary and finished steel, impacting producers such as ourselves, particularly given our authorities' continuing reluctance to impose meaningful trade remedies.' He said it was clear in 2024 that China had prevailed in the battle for supremacy in the automotive sector, in that it could produce steel-intensive cars for a third of the price that other manufacturers were forced to charge, which had decimated the automotive industries of traditional vehicle makers such as Germany. 'It was indeed gratifying that in March 2025 we were able to announce that additional support from the IDC, coupled with specific government undertakings, allowed us to continue operating Longs for at least a further six months,' he said. He said a scaled-down, focused ArcelorMittal South Africa would be increasingly attuned to the need to deliver a rising tide of growth. 'Moving forward, we as a country need five pieces of the national puzzle to fall into place: we need transformation, ethical leadership, good governance, service delivery, and law and order,' he said, adding that he hoped the new government of national unity would see these goals achieved. CEO Kobus Verster said the manufacturing, steel fabrication, and the machinery and equipment sectors in South Africa, as well as construction, all recorded negative growth last year. In most instances, this was after several preceding years of contracting output. 'Key steel-consuming sectors, agriculture and automotive, returned double-digit negative growth. The economy limped to growth of under one percent while there was little evidence of any large-scale infrastructural investment,' he said. 'For Longs, the highest priority, we argued, should have been given to urgently and decisively reviewing the scrap export tax, the scrap pricing system and its administration (which currently is easily manipulated by unscrupulous participants). Collectively, these aspects have unfairly prejudiced us as the only local company beneficiating our country's wealth of iron ore,' said Verster. He said the surge in global steel exports saw ArcelorMittal South Africa's net realised prices fall to multi-year lows in 2024, last seen (apart from during the Covid-19 pandemic) in 2015/2016. At 1.36 million tons, imports represented 33.6% of local consumption, up 3% from 2023. While flat steel imports increased by 1.5%, long imports rose by 108% to some 193,000 tons. 'Most imports are unfairly subsidised, a reality that has prompted a raft of meaningful trade remedies around the world,' said Verster. The European Union, UK, US, Japan, and most other countries with primary steel industries expanded their tariff regimes, and in 2024 the Southern African Customs Union was left very exposed to injury/dumping. ArcelorMittal SA's management had responded by trying to raise government and market awareness of the damage posed by a surge in subsidised exports, and in response, a provisional safeguard on hot rolled products was introduced in July but lapsed in January 2025. The authorities also announced an anti-dumping duty on heavy sections. Duties on the export of scrap steel and a so-called pricing preference system (PPS) served to keep scrap prices artificially low. These mechanisms favoured electric arc furnace makers of, in particular, long steel, giving them an unfair advantage over integrated steelmakers. 'In 2024, we operated at a disadvantage relative to these producers (many of which are backed by public funding of some R8.5 billion per annum in subsidies). This reality was largely responsible for putting our Longs business at risk,' the group management said. Raw materials made up 46% of cash costs in 2024. The locally sourced negotiated iron ore prices were 11% up relative to those of the previous year, while international coal prices fell by 18.4% in 2024 compared to the previous year. Some R3.2bn was spent on buying electricity from Eskom, up 14% on 2023. Since 2007, electricity tariffs have increased by more than 800%. In 2024, poor performance by Transnet Freight Rail (TFR) resulted in 'considerable lost production and sales." Over the past three years, rail tariff increases had outstripped inflation. 'In 2024, the performance of our Longs business translated into an operational EBITDA drain of R1.67bn (2023: R655 million loss). Process and raw material cost savings, together with stringent cash management and Value Plan savings, made it possible to maintain our net borrowing position at a level similar to that of the previous year,' the group said.
