South Africa’s steel industry is currently grappling with significant challenges, primarily due to lax government policies alleged to have facilitated illicit trade practices and an influx of unsustainable imports.
The nation’s largest steel producer, ArcelorMittal South Africa (Amsa), has issued warnings about ongoing uncertainties affecting its local operations, threatening the stability of the sector.
With demand for steel dropping sharply, Amsa’s situation is compounded by soaring energy and logistics costs. In terms of production, South African crude steel production amounted to 460 000 tonnes in both July and August 2024 against the backdrop of an increase of 5% in primary steel imports.
“The greatest issue is that local steel demand has fallen by about a third in the past twenty years and the blame lies squarely with the government’s anti-growth policies,” Bruce Williamson, mining analyst at Integral Asset Management said in an interview yesterday.
He added that steel impacts were having a “very big impact” on the SA steel industry. The steel imports have grown from around 16% in 2018 to 30.6% in 2023.
This is deterring local producers such as Amsa, which has over 5 million tons per year in capacity but produced around 2.8 million tons in 2023, from ramping up output.
Not running at full capacity means lower efficiencies and having to put certain plants on care and maintenance. The company had opted to place its longs steel business on care and maintenance.
Still, it rescinded the decision after receiving assurances from stakeholders such as the government that the constraints it was facing would be addressed.
The imports are growing as a consequence of excess global steel capacity and a lax policy framework by the government, said other players in the industry.
They cited an export tax on scrap metals introduced in 2021 as having created a “double burden” on the scrap metal industry.
The Steel and Engineering Industries Federation of Southern Africa (SEIFSA), which represents more than 1 000 companies in the metals and engineering sectors, has been vocal against the distortions that SA’s policy framework was causing, translating to a significant devaluation of South African scrap.
SA scrap prices are reported to be trading at a 42% average discount to global prices. This low price for raw materials was tilting the SA sector in favour of small steel mills while disadvantaging the bigger producer.
“We are now at the point where steel importers and domestic suppliers are fighting for survival. Apart from slower global growth, the SA economy is almost at a standstill due to poor political leadership and anti-growth policies,” explained Williamson.
But it is not just these policy and operational constraints that are hobbling the steel sector in SA.
According to players in the sector and the National Union of Metalworkers of South Africa (Numsa), other illicit practices such as unfair labour practices have become prevalent in the small steel mills sector.
The Department of Home Affairs, the South African Police Services, and the Department of Employment and Labour, recently raided some steel mills for not complying with labour regulations.
Numsa has previously complained against unfair labour practices across SA’s steel milling sector.
But its not everyone who agrees that the steel industry is tilted in favour of the smaller players.
Market analyst Dave Hazelwood wrote on X recently that the South African steel industry was at a precarious point, with the government trying to prop up Amsa and risking prospects for related downstream industries that rely on imports.
“Local market just isn’t big enough to support primary producer, especially in longs division. Downstream industries and employment will get far bigger uplift from cheaper imports,” said Hazelwood.
Williamson also said that “another wave of tariffs seeking to protect Amsa will definitely impact smaller players that import” their steel.
Either way, the Government of National Unity seriously has to consider the viability of the sector and act to address the concerns of industry players.
Other stakeholders should also effectively play their roles, including parastatals such as Transnet and Eskom in propping up the key SA steel industry.
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