Latest news with #PricePreferenceSystem
IOL News
a day ago
- Business
- IOL News
Don't leave recyclers on the scrapheap Minister Tau
Nancy Strachan is CEO of the Recycling Association of South Africa. Image: Supplied In a week where Minister of Trade, Industry and Competition, Parks Tau, signalled a strategic pivot in South Africa's trade posture toward the United States, something extraordinary happened. Amid the headlines about $3.3 billion in pledged outbound investments and renewed commitments under Agoa, one detail passed quietly: Minister Tau specifically cited metal recycling as a pillar of the proposed framework. For those of us in the recycling industry, and for the hundreds of thousands who make their living scavenging, sorting and selling scrap, this was not just a diplomatic aside, it was recognition long overdue. The Recycling Association of South Africa (RASA) welcomes the Minister's leadership and vision. The inclusion of metals recycling as a focus for joint ventures under the new US engagement strategy affirms what many of us have long argued: that this industry is not peripheral, but central to sustainable development, industrial competitiveness and poverty alleviation. Globally, metals recycling is part of the engine room of the circular economy. It diverts waste from landfills, reduces carbon emissions, and supplies critical inputs for green industries, from electric vehicles to solar panels. It is also labour-intensive, creates jobs, attracts investment, and innovates. That Minister Tau sees this is encouraging. For more than a decade, South Africa's scrap metal policies have prioritised steel mini-mills at the expense of the recyclers who collect, process and trade scrap. Introduced in 2013, the Price Preference System (PPS) mandates that scrap metal be sold locally at prices up to 30% below export parity. Export bans and taxes have compounded the suppression. In theory, these measures were meant to reduce infrastructure theft and support local steelmaking. In practice, they have done neither. What they have done is divert an estimated R6 to 8 billion a year, over R60bn since inception, away from informal waste pickers, micro-traders, and processors, into the hands of a few capital-intensive operators. South Africa's scrap exports have collapsed from 1.8 million tonnes in 2012 to just 156 000 in 2023. Employment in the formal steel sector has fallen by 46% since 2009. Mini-mills complain about scrap shortages, but routinely reject material, leaving collectors with no buyers and no income. We hear a lot about 'inclusive growth'. But you will not find a more grassroots industry than scrap. In a country with an expanded unemployment rate above 40%, over 400 000 people, mostly poor, many women, eke out a living collecting waste. They are entrepreneurs, not beneficiaries. They work 12-hour days pushing trolleys across cities and towns to gather what society discards. And they have been systematically dispossessed by policies that distort prices, close markets, and make their labour less valuable. This isn't just economically irrational; it is socially destructive. The irony is painful: while South Africa presents itself to the world as a champion of sustainable industries, its domestic policies undermine the very sectors that could lead its green transition. Export restrictions have cost the country over R31bn in lost output, with R21bn from aluminium alone. Bans create bottlenecks, suppressed prices kill investment and jobs that should be created, vanish. We can and must do better. The United States has proven that liberalising trade in recyclable materials fosters sectoral growth, technology transfer and environmental benefit. Japan, with no domestic iron ore, has built an entire steel ecosystem on imported scrap. So too can South Africa, but while it punishes its own collectors. Minister Tau's comments signal a hopeful shift in mindset. By engaging the US on metals recycling, the government is acknowledging its economic and environmental promise. Through collaborative leadership with government, now is the time to translate this into policy reform at home. The PPS, the export bans, and the price suppression policy must go. Doing so would restore fair pricing, open access to export markets, and allow recyclers to reinvest. In the formal sector, this means upgraded processing infrastructure and new jobs. In the informal sector, it means daily survival: higher returns for cans, steel, and discarded household appliances. More collections, less landfill and more dignity through work. Lifting these barriers would not be a handout. It would be a signal to the world that South Africa is serious about climate goals, about inclusive industrialisation, and about the people who keep our streets clean, our landfills light, and our circular economy turning. RASA stands ready to partner with government to modernise this vital industry and hundreds of thousands of waste pickers are waiting. Nancy Strachan is CEO of the Recycling Association of South Africa. *** The views expressed here do not necessarily represent those of Independent Media or IOL. BUSINESS REPORT
Daily Maverick
7 days ago
- Business
- Daily Maverick
The writing is on the wall for ArcelorMittal long steel
With the 30 September deadline for winding down the long steel business looming and R1bn in headline losses bleeding from ArcelorMittal South Africa's balance sheet, CEO Kobus Verster is running out of patience with what he calls 'misguided policies' that have crippled the local steel industry. Speaking after the release of devastating interim results that showed a loss of R394-million despite a cash injection from the Industrial Development Corporation, Verster delivered a blunt message to the government: fix the structural problems strangling steel production or watch South Africa's last integrated steelmaker cannibalise itself to survive. 'If that's not on the cards and we can't get agreement on that, then I have to find an alternative to basically recapitalise the business from within,' Verster told Daily Maverick, outlining plans to sell off valuable assets including Saldanha Steel, which he described as being 'in very good condition' with potential for green direct reduced iron production. 'Saldanha Steel is a valuable asset. We had intent for it in terms of green DRI (direct reduced iron). The assets are in a very good condition, but I can't wait five or six or seven years. Maybe there's a partnership or another party that can give me value.' The warning comes as ArcelorMittal prepares to monetise what it calls 'non-core assets' – including Saldanha Steel, the Tubular Mill, Vereeniging Bar Mill, ArcelorMittal Rail and Structures, and various properties – in a desperate bid to shore up its balance sheet and keep the lights on at its remaining flat steel operations. What this means for you As I reported just a few weeks ago, the closure of the long steel business directly threatens about 3,500 jobs. However, as seen with the closure of the Saldanha Steel plant in 2020, the collateral damage goes far beyond that. At the time, management said about 900 direct jobs would be lost. The downstream impact has been far wider, forcing the closure of, among many other supplementary businesses, a local car wash that was used by Saldanha Steel employees. Steel businesses that relied on Saldanha Steel, such as Anderson & Kerr, as well as Duferco Steel Processing, have also taken knocks that resulted in retrenchments. Five years later, many of the employees who once worked at Saldanha Steel remain unemployed and at least one has taken on a job as a local petrol attendant to keep food on the table. 'Misguided policies' At the heart of ArcelorMittal's crisis lies what Verster characterises as a web of 'misguided policies' that have systematically undermined integrated steel production while inadvertently subsidising smaller scrap-based mills. The most contentious is the Price Preference System on scrap metal, which ArcelorMittal claims has transferred 'more than R60-billion over a decade from informal workers and recyclers to a handful of capital-intensive scrap-based mills.' But scrap policy is just one front in what has become an infrastructure war of attrition. Rail performance has 'deteriorated substantially,' forcing ArcelorMittal to transport 62% of raw materials by road – up from 20% – while rail transport dropped 30%. 'Our plants are designed to take a train, tip it into our conveyor system, and it takes everything to the relevant places,' Verster explained. 'Now you have to go and offload those big trucks in the yard, you have to get equipment and move that around, and you have to accommodate about 370 trucks per day into your operation. Those are the types of costs.' The combined impact of disruptive rail and electricity interruptions added R358-million in costs during the first half of 2025 alone. Import invasion While domestic infrastructure crumbles, imports have surged to more than 35% of local steel demand, prompting ArcelorMittal to seek protection through safeguard duties. The company achieved a partial victory in June when a provisional safeguard duty of 52.34% was imposed on corrosion-resistant steel coil for 200 days, based on findings of 'serious injury' to local industry and 'critical circumstances'. But Verster argues the government should go much further: 'The government should be much more aggressive in implementing more blanket protection against all steel, which all other countries are doing. Countries have 25% duties, and they enforce it – then you should not have less.' He pointed to Canada's quotas and additional duties to exclude Chinese products, while noting that even provisional duties already in place haven't shown their full impact, partly because imports are sometimes declared at '10% of the value'. The long steel endgame Despite the IDC's R1.683-billion lifeline – now fully utilised – the long steel business remains on death row. Verster confirmed that 'the timeline and our conditions are exactly the same' for the 30 September wind-down date. The IDC funding, he said, has 'largely neutralised' the losses from the long steel business, but ArcelorMittal 'cannot assume any further financial risks related to the Long Steel Business beyond the next few months'. The company is awaiting the outcome of the IDC's due diligence process, but appears to be preparing for the worst. Asset monetisation plans are already being finalised, with proceeds earmarked to 'reduce debt levels and invest in the core Flats Business for earnings and cashflow improvement'. Cautious optimism Despite the grim numbers, Verster detected signs of improvement in recent months. 'Recently, we perform[ed] a lot better on that front and it also appears the market is taking a bit more material in the last two months than previously, so hopefully that will be behind us.' The company is pursuing what it calls 'export replacement' strategies. Verster said, 'Our intent is not just to recover the 10%. Our intent is to recover the 10% but then move beyond that and replace more imports.' However, the outlook for the second half of 2025 remains cautious, with domestic demand expected to stay constrained despite modest improvements in global steel sentiment. The bottom line What emerges from ArcelorMittal's interim results is a portrait of an industry under siege – not just from global market forces, but from a perfect storm of policy failures, infrastructure collapse and regulatory inaction. Verster's message to the government is clear: 'You cannot have these expensive rail and electricity costs and think manufacturing organisations can survive. Once again, it's not a thing you see – you see the same issues in the smelters and ferro-alloys and others.' His frustration is palpable. 'This is not a crisis you can almost say is a South Africa steel issue. It's not a steel issue. It's an economic issue.' DM
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.
