ArcelorMittal’s SA unit is in trouble. It has lost R500m in the six months to end-June, its share price is underperforming the broader stock market and it is threatening to shut down yet another plant.
The company’s operational and stock market woes are partly due to the competitive environment, the economic downturn and cheap Chinese imports. As one of the biggest SA employers, it is tempting to reach for quick fixes such as import tariffs, as suggested by CEO Kobus Verster. Still, it is worth pausing and considering a more nuanced approach.
Granted, Chinese steelmakers wield the formidable weapon of state support, allowing behemoths such as Baowu Steel to produce more than the global demand and hitting companies such as ArcelorMittal. In 2019, China’s steel output was estimated at more than 500-million tonnes, almost six times the total steel output of the US. Unfortunately, some of this surplus floods international markets, often at bargain prices, affecting companies such as ArcelorMittal and pushing them to the margins.
It is also true that countries from Mexico and India to the US and Vietnam have followed Europe’s lead in imposing tariffs on Chinese steel imports.
“What we have asked for is something that brings us in line with the protection that other countries have imposed. So if you talk about the US it is [about] 25%. Brazil is the same, so typically that is the type of level that we ask for,” Verster told Business Day. “We think an additional percentage that brings us in line with the world average of about 25% is fair.”
But should we mimic their tactics? For our part, the trade & industry department announced an additional 9% safeguard duty for 200 days on top of the existing 10% general custom duty. Verster expressed reservations about these temporary measures, saying they fell short of ensuring the long-term sustainability of the industry.
Making the temporary measure permanent, and adding 6% to be in line with the world average, may seem like a silver bullet, but the levies will not address the industry’s deeper structural issues — as laid out in these pages by Neva Makgetla, a senior researcher with Trade & Industrial Policy Strategies.
ArcelorMittal cannot rely solely on shielding itself, it must strengthen its core. While the focus has been on external threats, small mills at home have chipped away at ArcelorMittal’s share of the market both domestically and in exports. Yes, state support in the form of funding from the Industrial Development Corporation for these newer smaller mills skews the playing field, but their competitive blades are largely honed by their nimbleness and innovation.
Verster may have a point but import tariffs are not a magic wand. He needs a broader strategy. The solution lies in innovation, skills development, modernising mills to reduce downtime and boost productivity, and diversifying its steel offerings.
The company’s goal should not be to slay dragons; it should be about building resilience. Tariffs will not make the industry invincible; it would merely protect us from the sun. Verster and policymakers’ legacy should not be etched in tariffs but in strategies and policies that must stand the test of time.
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