Steel safeguard duties 'will cut jobs and protect ArcelorMittal monopoly'

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This is destroying the downstream metals sector that benefits from cheaper imported steel. Neasa says ArcelorMittal SA's high pricing "no doubt is a prominent contributor to the 25,000 jobs lost in the downstream sector over the past year".

This comes amid the liquidation of SA's second-largest steel producer, Evraz Highveld Steel & Vanadium, of which only the large structural steel business has been rescued - by ArcelorMittal SA. This means the group now dominates at least 80% of the South African steel market - up from about 70% earlier.

It also comes as the state has capped ArcelorMittal SA's product prices, disallowed retrenchments at the group and struck a long-awaited empowerment deal. As part of this, the government has stipulated it must invest at least R4.6bn in plant and equipment. But this is mired in controversy.

The group is accused by Neasa and the government of not investing in modern production processes, thereby driving up output costs, while its proprietors have raked it in.

All this has come to a sticky end in recent years. ArcelorMittal SA has racked up losses of more than R10bn amid the global financial crisis and a lack of infrastructure spending by the government.

Since then, large volumes of cheap imported steel have flooded the market, further undermining the primary steel industry, while benefiting the downstream sector. Neasa says the R4.6bn set aside to upgrade ArcelorMIttal plant in SA has been heavily diluted after the Luxembourg-based Arcelor parent group repatriated R3.2bn by way of a rights issue.

"This happened after the government accepted its promise of the R4.6bn investment," says Neasa CE Gerhard Papenfus. The rest of the cash is earmarked mainly for expanding the group's coatings division "to further dominate the market", along with maintenance spending at the ageing plant.

Papenfus says ArcelorMittal SA has admitted its service delivery is below standard, but blames low demand.

"According to them, slow throughput results in production problems. They simply do not want to admit that this problem is caused by old technology. If they had reinvested the billions of rand that they took out of the country, this would not have been the case," he says.

Papenfus also decries the company's claims that it now has a fair pricing model. A few years ago, former CEO Paul O'Flaherty acknowledged the group was guilty as charged over monopoly pricing, citing its "complete and utter arrogance to our customers and the government".

"Somehow they have convinced government that fair pricing means that you can hand-pick a few countries, with some of the highest steel prices, and use that average to prove that their price is fair," says Papenfus. Half of the world's steel is produced by China at much lower prices than ArcelorMittal SA, he says.

The government has imposed 10% World Trade Organisation (WTO) duties on certain foreign steel imports. But primary steel producers still say this does not adequately protect the sector.

To this end, Trade and Industry Minister Rob Davies has signed off on a proposal for further steel safeguards that is on its way to the WTO.

"The 12% safeguard duties, apparently about to be introduced, will simply speed up the current jobs bloodbath," Papenfus says. "Manufacturing will cease at many factories in SA and the finished product will be imported - all for the sake of protecting a monopoly."

Only ArcelorMittal group majority owner Lakshmi Mittal and "five new empowerment partners" stand to benefit, he says, to the detriment of the downstream industry.

But nothing will be plain sailing. The Steel and Engineering Industries Federation of Southern Africa (Seifsa) says that "on the back of unfortunate political events and the [ratings] downgrades" the fall in the June 2017 Absa purchasing managers index is "confirmation that the fundamentals of the South African economy are too weak to support the manufacturing sector". Meanwhile, the stronger rand has not helped steel exports.

Source: Business Day