A war is brewing as a coalition of electric steel producers pushes back against calls by ArcelorMittal SA (Amsa) for authorities to discard the export tax on scrap steel.
The companies, which include Scaw Metals, Cape Gate, Veer Steel Mills, Unica Iron and Steel, Force Steel and Coega Steel, on Tuesday warned that scrapping the tax would cripple smaller, more environmentally conscious steel producers, who together account for 75% of SA’s long-steel production capacity.
They also said discarding the tax would be a setback for SA’s efforts to cut its carbon emissions since Amsa’s production process was highly pollutive, resulting in a less competitive local manufacturing industry.
“Removing the export tax would threaten the survival of many local steel mills, lead to thousands of job losses and undermine the government’s stated commitment to industrial diversification and sustainability,” the companies said.
Electric steel producers rely on scrap to produce long products including steel bars and wire rods used in construction and mining. They said the tax on scrap metal destined for export meant local scrap was available and affordable, and enabled them to create finished products in line with government policies to enhance local industrialisation and beneficiation.
The Metals Recycling Association of SA estimates that the scrap metal sector employs about 350,000 people and adds R15bn to the country’s GDP.
SA’s scrap metal export duty, implemented in August 2021, applies to all such exports unless exempt under trade agreements. SA imposes an export duty on scrap metal to protect domestic supplies, promote job creation and enhance local investment
Amsa has consistently opposed the scrap metal export tax, arguing that since there is more than enough supply to meet local demand, the levy would only benefit electric steel producers, who are the resource’s direct users, rather than the economy as a whole.
‘Appropriate level’
In a market update this month, it renewed a call for the export tax to be scrapped immediately and the resetting of the price preference system mechanism at an “appropriate level”.
Instead, the electric steel producers want the state to deal with the oversupply of steel and develop a fair, long-term policy that safeguards all industry participants and guarantees a competitive, environmentally friendly steel sector that follows international trends.
“Due to an oversupply of steel in the global and local market, the SA government faces a critical decision: safeguard the future of the entire steel industry or prop up ArcelorMittal’s outdated and heavily polluting operations,” the coalition said.
Amsa already benefited from government protection in the flat-steel sector where it has a virtual local monopoly, coupled with tariffs to protect it from lower-priced imports, the group said, adding that Amsa’s poor financial performance was not a result of the export tax on scrap.
“We call on the government not to favour ArcelorMittal as it addresses the oversupply of local steel,” the producers said. “SA cannot afford to favour a single company at the cost of thousands of jobs, industrial sustainability and a vibrant, competitive market.
“Prioritising ArcelorMittal at the expense of greener producers would only serve to hurt the broader economy and is likely lead to the closure of the firms involved in environmentally friendly steel production.”
Amsa, which is seeking to turn its business around, reported widening losses for the six months to end-June amid difficult local and regional trading conditions and the effect of interruptions at two blast furnaces at Vanderbijlpark.
The group, which recently flagged that it was considering whether to approach shareholders for money after a further slump in performance in the third quarter, noted that scrap was an important resource for decarbonisation.
However, Amsa on Tuesday said scrap shouldn’t be artificially discounted by 40% to encourage the export of scrap to the rest of the globe as low-grade, commercial-quality billets, rods, and rebar that had only been melted with "scarce electricity".
“It is fundamentally a flawed business model with no economic benefit to SA,” Amsa said. “The current policy artificially incentivises the melting of scrap rather than the beneficiation of iron ore which is available in abundance in SA and for which industrial capacity exists.”
Update: October 31 2024
This story has been amended to include further comment from ArcelorMittal SA.
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