The sorry state of steel: the govt is to blame

Business

The sorry state of steel: the govt is to blame

The industry is beset with problems, but it all boils down to errant policy over steel

Mark Allix

The government will continue to “work with” the South African steel industry to avert job losses in the crisis-hit sector. But this is a case of closing the stable door after the horse has bolted.
Some of the problems in the industry can be put down to SA’s membership of the Brics grouping of nations. Others to the ruinous years of the Zuma administration. But it also boils down to errant policy over steel, and the state’s unremitting desire – and at the same time its inability – to control what is best left to markets.
In the case of Brics, SA has been reluctant to offend its geo-strategic partner China by hitting cheap steel imports hard. Instead, the government has taken years to increase the general tariff on primary steel products to 10% and to implement 12% safeguard measures on hot rolled coil and plate products.Critics say this just benefits monopoly South African primary steel producer ArcelorMittal SA by denying value-added manufacturers cheaper inputs.
Meanwhile, the state has also put in place some nominal tariff increases on imports of added-value steel products. But the shouting has just got louder.
The world steel industry has never really recovered from the global financial crisis. However, the government’s lack of spending on big infrastructure projects since the 2010 Soccer World Cup in SA has been key to the domestic sector’s woes.
Now, with President Donald Trump having imposed tariffs on US steel imports, it is hard to know where to turn next.
Slowly shutting down
Umeesha Naidoo, acting chief director of primary minerals processing at the Department of Trade and Industry (DTI), recently told parliament that since SA’s steel industry crisis began in 2015 a government task team has staved off the threat of closure and loss of capacity.
But still the industry is slowly shutting down. Apart from the government refusing to let ArcelorMittal SA restructure itself by laying off workers, it has imposed caps on the group’s pricing. However, customers still regularly complain of cost increases, so it is clear that such interventions are not working.
The dangers facing the sector have become so bad in recent years that the industry and labour together in late 2015 took the unprecedented step of listing 10 “core collective demands” of the government to prevent job losses.Among these were the imposition of tariffs to stop “rampant” cheap steel imports from China; the designation of steel for government infrastructure spend; and the “urgent rollout” of SA’s 18 strategic infrastructure projects.They also included demands for transparency in capital expenditure by state-owned enterprises; a ban on scrap steel exports so that local industries can benefit; and the delay of the proposed carbon tax.
Despite some of these demands having since been met, SA's second-largest steel maker, Evraz Highveld Steel & Vanadium, has slipped into liquidation, while ArcelorMittal SA has shuttered some plants amid billions of rand in losses.Thandi Phele, the DTI’s chief director of capital equipment and metals, says a number of steel-intensive downstream products have been designated to take advantage of public procurement and expenditure. The government has also established a R1.5-billion steel development fund to support key steel sectors and sub-sectors.
But the state admits that monitoring and evaluation of these measures needs to be improved. In the interim, the industry is floundering. As part of the broad metals and engineering sector, steel is closely linked to the fortunes of the mining, construction, energy, infrastructure and automotive value chains. These employ about eight million people, and together contribute about 15% to GDP annually, or about R600-billion.

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