Against a backdrop of talks on a possible R1bn bailout for ArcelorMittal, SA’s struggling long-steel business, an analyst has cast doubt on fears that the closure of ArcelorMittal’s steel business will lead to the sector’s collapse.
He said that mini-mills supplied half of the long steel and that about 32% of consumption was imported.
Stakeholders, including the government, have been scrambling to find a way to revive the company and avert job losses since learning early this month that Amsa would be closing its long-steel plants in Newcastle and Vereeniging. This would result in 3,500 direct job losses and put 25,000 more jobs in the steel value chain at risk.
However, in a note shared with Nedbank private wealth clients last week, independent political and economic analyst JP Landman said there was life after the closure of Amsa’s long steel plants.
The closure of the long products plant had been expected for more than a decade due to global consolidation, he said.
Landman said in the note the local market was not likely to suffer a shortage because steel could be bought and imported at low cost from various sources while mini-mills already provide half of SA’s long-steel needs. He said that there was life after the closure of Amsa.
"The mini-mills may well start making some of the smaller products historically made by Amsa," Landman said.
"With 50% of long steel provided by mini-mills and about 32% of consumption imported, reports that the whole steel industry would die are simply exaggerated."
SA could produce 8.8-million tonnes of steel annually yet last year total demand was only 4.1-million tonnes, of which 1.3-million tonnes were imported.
But Elias Monage, president of the Steel and Engineering Industries Federation of Southern Africa, disagreed with the idea that the gaps left by Amsa could be replaced by existing alternatives.
Monage said that there were differences in the Amsa and mini-mills processes and the quality of steel they produced.
He said that to rely on imports and so support employment in other countries would set a dangerous precedent.
"We are not going to build the country’s infrastructure on the back of imports," he said.
"If indeed we wanted to deal with re-industrialisation and addressing infrastructure we need to have the primary producer here locally.
"As a country, we need every job we can create and protect given the increase in unemployment figures."
Unbalanced
Several factors over the years had put pressure on the profitability of SA’s largest steel producer, such as the favourable iron-ore price from which it benefited previously, the emergence of mini-mills that created local competition for long steel, customer complaints about subpar service and criticism of inadequate capital allocation.
SA’s largest steel producer has also been considering asking shareholders for money as it seeks ways to fix its unbalanced financial structure.
Government’s contentious price preference system — which expires in July 2027 though it may be extended — has contributed to the success of mini-mills. It enables them to obtain scrap metal at a preferential price and make cheaper long steel.
Amsa has called for a review of the price preference system, claiming that it creates unfair competition. In addition, Amsa has asked for a higher 25% tariff on imports from 9% now and the scrapping of the export ban on scrap.
Business Times reported this week that trade, industry & competition minister Parks Tau and finance minister Enoch Godongwana have set up a team to draft a rescue package of up to R1bn.
The motoring industry, which relies on 70,000 tonnes of long steel annually, primarily for automotive components used in vehicle manufacture, has said a crisis can be averted or postponed after emergency talks with the company and government.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.