STEEL INDUSTRY: Does South Africa need AMSA or not?

by Gerhard Papenfus

The burden on the steel downstream for the ‘privilege’ to have a primary steel producer, in our case AMSA, comes at a huge cost.

Government (ITAC), at AMSA’s request, is persistently expanding and increasing its web of import duties on raw materials to protect AMSA, which, mainly due to it being such an antiquated mill, is a high-cost producer that cannot compete with international modern mills without government intervention.

The latest application by AMSA for the introduction of a 51% anti-dumping duty on certain flat-rolled products imported from China is a perfect example of this. Should this duty be implemented and added to the 10% duty already being applied, it would mean that importers would pay a 61% premium should they wish to import flat steel.

Although not the only reason for the persisting decline of the Steel Industry, the uncompetitive price of steel severely impacts its sustainability, and for as long as ITAC continues to give in to AMSA's request for more protectionist duties, the adverse impact on the Steel Industry will continue. 

Within the current AMSA-protecting duty-driven approach, AMSA is the only winner. It is apparently not that concerned about the perpetual shrinking of the Steel Industry, as AMSA, owing to the protection of a firewall of duties, will not be required to invest but still be able to sell its steel at an exorbitantly high price to a smaller market.

This raises the question: Is it worth sacrificing the steel downstream for AMSA? Is it worth allowing for the artificial inflation of prices, which ultimately affects all citizens, as steel is used in a myriad of production activities, with the ensuing increased production cost being passed on to the consumer?

There must be an alternative to this downward spiral. A recourse in this regard would be to remove all duties and allow the Steel Industry to buy raw material at international price-levels, which might even lead to the closure of AMSA’s remaining flat steel production facility. Speaking to role-players in the Industry, this will cause, at worst, a short-term hiccup.

Due to being uncompetitive, AMSA recently closed its long steel production facilities in Newcastle and Vereeniging, but somehow, and certainly not without challenges, most of the Industry is managing to survive. The private sector is sufficiently equipped and adaptable to overcome this type of challenge.

In the case of flat steel products, the closure of AMSA's Vanderbijl facilities might be a bit more challenging, but the private sector will, once again, step up to fill the gap. The eventual closure of AMSA's flat steel production is probably inevitable, and the sooner that day arrives, the better. From that moment onwards, the Steel Industry will have access to steel at competitive prices. 

This will be an important step towards the normalisation of the Steel Industry.

Gerhard Papenfus is the Chief Executive of the National Employers' Association of South Africa (NEASA). 

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