Steel deal may lift struggling metals sector

© Oleksiy Holubenko – 123RF.com

Russian-backed Evraz Highveld is in a protracted business rescue process that will ultimately lead to it being sold off in chunks as it is wound down. It will now, through its subsidiary Highveld Structural Mill, process blooms and slabs supplied by ArcelorMittal into heavy structural steel. The steel is to be used in large infrastructure projects and construction works such as shopping malls.

The deal between what was once SA's second-largest steel producer and the industry's remaining monopoly player, ArcelorMittal SA, a subsidiary of the global ArcelorMittal group, is still subject to certain conditions precedent. But once in effect, it will result in the reopening of Evraz Highveld's heavy section mill by the business rescue practitioners.

"Long-term sustainability for the sector means ensuring the continued supply of product to our customers and the downstream industry, job preservation and strengthening the local industry. We are confident that, with this agreement, we are able to achieve all three," ArcelorMittal SA CEO Wim de Klerk, said.

It is envisaged that the heavy sections mill will begin operations in 2017. The mill makes structural steel for infrastructure that is not produced anywhere else in Africa. However, for SA's struggling steel industry, general manufacturing sector and the politics-ravaged economy, it is really a hollow victory over economic adversity, much of which has been self-inflicted.

For it to be viable, the longflagged transaction relies on the implementation of tariffs on the products that the heavy section mill can make. Such duties are part of a broader protectionist plea for safeguard measures of what is left of SA's steel industry, to save it from cheap Chinese dumped steel products. South African steel products have a 10% basic tariff protection, but this is not seen to be enough.

The Evraz Highveld application has been submitted to the International Trade Administration Commission, but needs to be finalised.

The reopening of its heavy section mill will preserve some jobs in a sector that has been shedding them. The agreement will operate for an initial two years with an option to be extended for a further one-year period. ArcelorMittal also has an option to buy the Highveld Structural Mill subject to further regulatory and governance approvals that may be required.

Trade union Solidarity has welcomed the agreement between ArcelorMittal SA and Evraz Highveld. Marius Croucamp, deputy general secretary of steel and engineering industry matters at Solidarity, said it was a positive development for the Emalahleni community, as well as for SA's economy.

"Earlier this year, this community was affected by mass retrenchments involving 1,753 [Evraz Highveld] employees," Croucamp said. As a mainstay of the Emalahleni and the broader Mpumalanga economy, the group had an original workforce of nearly 2,300 employees. The agreement may reinstate about 600 jobs at Evraz Highveld.

"The number of employees that have to be appointed for the purposes of the agreement will be determined earlier in the new year," Croucamp said.

Steel and Engineering Industries Federation of Southern Africa (Seifsa) senior economist Tafadzwa Chibanguza said fluctuating gains and losses in South African employment figures are a symptom of a "classic zero-sum game". The manufacturing sector had shed 3,000 jobs between the second and third quarters of 2016.

"We view this with concern because the metals and engineering sector constitutes 28% of total manufacturing. For the nine months to September 2016, the manufacturing sector has shed 19,000 jobs," he said.

Seifsa recently warned that because falls in manufacturing production have been greater than falls in employment, SA's metals and engineering sector was likely to experience further cost rationalisation through shedding of jobs. In the 12 months to September 2016 - end of the third quarter - the metals and engineering sector had shed 16,000 jobs, representing a 3.4% drop.

Source: Business Day