SA’s embattled steel industry has bled 25,000 jobs since 2009 — losses that continued after the introduction of the price preference system (PPS) more than a decade ago, a report by independent economic research consultancy Econometrix shows.
The report, released on Thursday, points to the government’s interventionist policies in the steel industry, in which production has plunged 40% below its 2006 peak.
The data shows that about 7,500 jobs were lost in the sector since 2014 after the introduction of the PPS the previous year. The policy regulates the export of ferrous and nonferrous scrap by not allowing the exportation of scrap metal unless it has first been offered to domestic consumers at a discount to the international price at the time of sale.
Azar Jammine, director and chief economist of Econometrix, said the imminent closure of the ArcelorMittal SA (Amsa) long steel business, particularly the Newcastle plant, will have a devastating impact on the country’s manufacturing base.
He said the PPS and scrap export tax policies created an imbalance in the sector, creating an unfair advantage to
mini-mills.
“Just as SA’s production is falling, we have seen a huge increase in imports of cheap steel from overseas. The tragedy is that we produce iron ore, which should give us a big comparative advantage as SA in making steel. But we have not been able to take advantage of this,” Jammine said.
“There has been an 11% annual increase in steel imports since 2005. On top of that our own local steel mills have faced enormous increases in input costs … this type of environment has been very hard on the larger mills who are less able to adapt to some of these external macro forces,” he said.
“Then we had the PPS that deliberately tried to suppress the prices of scrap metal and this enabled the mini-mills to start importing their inputs at much lower costs than the bigger mills. Worsening the effect of this was the introduction of an export tax five years ago on scrap metals that again tried to benefit the smaller mills.”
The industry is also strangled surging electricity costs, up more than 250% since 2010, with an astronomical increase in raw material costs.
According to Econometrix, the closure of Amsa’s Newcastle plan will lead to a R3.5bn gross value added (GVA) loss to the city — a measure of the value of goods and services produced in a given area or industry.
The research firm also expects the closure of the long steel plant to shed about 64% of Newcastle’s manufacturing GVA.
According to Econometrix’s estimates, the closure of Amsa’s long steel operations will lead to up to 80,000 job losses across the value chain.
‘Recalibrated policy’
“Against this backdrop, the report highlights the urgent need for a recalibrated policy approach that levels the playing field for all industry players,” Econometrix said.
“Such an approach must consider the trade-offs involved, including: the potential closure of inefficient mini-mills, job losses in recycling, and the risk of reduced production capacity at primary steelmakers.
“At the same time, it must prioritise measures to stimulate demand, improve operational efficiency, and enhance SA’s position in regional and global steel markets,” it said.
“The unintended consequences of government policy have resulted in declining employment, reduced exports and earnings, lost economic potential, decreased turnover, lost opportunity costs from scrap export reductions, and a negative impact on informal waste pickers.”
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