I was celebrating my partner’s 50th in the Kruger National Park last week, with limited access to the outside world, when the news broke about the decision of ArcelorMittal SA (Amsa) to stop carrying coal to Newcastle, in effect shutting down the country’s only big long steel business.
Amsa CEO Kobus Verster cited three main reasons for the decision to stop throwing good money after bad at the Newcastle steelworks: the moribund local economy and the enduring myth of the government’s vaunted infrastructure programme; Transnet and Eskom’s failure; and the insanity that is Captain Master Plan Patel’s creation, scrap steel’s advantage over iron ore.
Departing the park through the Crocodile Bridge Gate I witnessed first-hand what Transnet’s failure has done to the once quiet Lebombo border crossing with Mozambique: a snaking 20km-long queue of tip trucks carrying mostly coal. At 19m a truck, that’s roughly 980 trucks waiting to make the crossing. Stories of drivers being kidnapped and assaulted and some abandoning their rigs are now common. Local farmers throw their arms in the air when asked about the situation. It’s a mess.
But beyond Transnet, which has finally been granted the bailout it needs from the National Treasury, with strict conditions attached (we’ll see how effective those are, given that management knows it has the finance minister over a monopoly barrel), it’s the scrap over the scrap market that caught my attention.
Verster maintains that the establishment of a scrap pricing system, a 20% export levy, and most recently a scrap export prohibition, has given steel production using electric-arc furnaces an “artificial” competitive edge over steel makers beneficiating iron ore to generate steel.
I understand the desire to support competition with Amsa and even supporting “greener” technology in the way of electric-arc furnaces, but the reality is we need reliable primary production in the country given that our ports simply cannot handle the import volumes. And with the electricity crisis, it is utterly absurd to encourage mini mills to melt scrap and then export it as billets. Where is the benefit? The scrap still gets exported just in another form, using electricity we simply don’t have.
The closure of Newcastle is disastrous for the industry and in keeping with trade, industry & competition minister Ebrahim Patel’s complete disregard for meaningful engagement, except perhaps with a chosen few.
I warned in a column during the launch of the steel master plan that business would be ill advised to get into bed with a minister who sees business as a necessary evil to be dispensed with at his omnipotent whim.
Faustian pact
Steel and Engineering Industries Federation of Southern Africa (Seifsa) president Elias Monage seemed to lament the Faustian pact he led his members into with Patel’s master plan in an impassioned oped last week. Seifsa was a signatory to the founding master plan and devoted considerable resources to it.
Monage now reveals that Seifsa has made several official requests to meet Patel about the scrap metal export prohibition, as well as other, broader and perhaps more relevant and strategic industrial policy issues over the past 12 months. All pleas were ignored. Some partnership.
Monage says industry is quickly losing faith in the steel master plan process. I disagree with him that the industry is losing faith. It didn’t have any faith to begin with. Issues such as skilled labour shortages have not even been hinted at being addressed.
A wandering albatross tells me it is almost impossible to get work permits for foreign nationals. “We are being pushed by the labour department to get rid of any foreign nationals, even if they have existing valid work permits. So we are struggling to grow as we can’t find the skills locally and can’t import them. So we can bring the work but can’t execute it.
“It really feels like there is a deliberateness in all this where sustainable economic growth is not the objective. What the objective is I really can’t say, but creating skilled jobs clearly isn’t it.”
According to data from Amsa’s annual reports and the SA Revenue Service, since 2010 the steel market has shrunk 57% from 5.041-million tonnes to 2.16-million tonnes annually. Imports of steel have increased by 42% to 1.859-million tonnes and Amsa’s operating profit has increased by 63% to R3.5bn, while its margin has increased from 7% to 9% over that period.
The political incentives are a glaring concern here, with the Industrial Development Corporation holding a 6.4% stake in Amsa, making the state-owned company the third-largest investor. Its investment is safeguarded through duties on imported steel decided on by two ministers.
The steel industry is the cornerstone of any contemporary economy. Just think of the volumes of steel we will need to build out our grid infrastructure in the coming years. The steel sector — and SA as a whole — urgently requires policy clarity, agreement on action plans and execution to instil confidence in the country’s ability to increase competitiveness and attract domestic and international direct investment.
Sadly, all we are left with is Patel on a power trip, changing tack as often as ANC secretary-general Fikile Mbalula changes his obituary dates for load-shedding while the queues of trucks carrying our export minerals for sale abroad grow longer by the day — the addition of a few more that are no longer carrying their load to Newcastle.
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at Badger@businesslive.co.za.
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