Steel producer ArcelorMittal South Africa (AMSA) informed its customers this week that it would be increasing prices on a range of steel products by up to 11% from April 1, but the JSE-listed group insisted that the hikes had nothing to do with recent increases in tariff protection from 0% to 10% on various grades.

Corporate communications and stakeholder Affairs GM Themba Nkosi insisted that the increases – the second instituted since the start of 2016 – were the result of a rise in raw material prices and improvements in the international price of steel.

He also stressed that they had been calculated using a pricing formula, still being canvassed with government, which calculates prices using a basket of steel prices from around the world rather than import parity pricing.

Negotiations on the so-called ‘fair price basket model’ were still under way between AMSA, the Department of Trade and Industry and the Economic Development Department, but Nkosi insisted that the talks did not prevent it from making price adjustments in response to changing market conditions.

The flat-steel adjustments included a 9% hike on hot-rolled coil (HRC); 11% increases on plate and cold-rolled coil and increase of 2% and 1% respectively for galvanised coil and colour-coated coil.

The increases for long-steel included 8% for reinforcing bar; 6% for wire rod (mesh bar, bolt, nut, grinding media and 40 mm rounds); 5% on rails; and 2% for light sections, including windows and fencing.

Government had been informed of the increases, as had AMSA’s direct customers. However, downstream end-users, which were facing difficult market conditions, rising import competition, as well as upward input price pressures in the areas of electricity and imported components were expected to react negatively to the move.

Their reaction was likely to be compounded by what AMSA described as a “misconception” that it was disallowed, by government, from raising prices in terms of an agreement to implement a new pricing model in return for higher levels of import protection. A view entrenched through a February media statement by the opposition Democratic Alliance, which suggested that AMSA was in breach of an agreement to freeze steel prices in return for protection.

The company had already succeeded in securing 10% tariffs for eight of the ten applications submitted to the International Trade Administration Commission of South Africa (Itac) and was expecting to learn the outcome soon of the two outstanding applications for HRC and other bars and rods. In addition, it was pursuing five safeguard-duty applications, which, if successful, would impose far higher protection levels over and above the 10% duties already secured.

PERFECT STORM

Steel and Engineering Industries Federation of Southern Africa chief economist Henk Langenhoven said the two increases already announced in 2016 would impact metal and engineering companies that were already facing a “perfect storm” of rising costs and weak demand.

However, he said it appeared that AMSA had deployed its new pricing model, which responded to changing market circumstances and excluded any protection from the eventual selling price.

Nevertheless, the increase would be difficult to bear in a context where nominal production in the metals and engineering sector was expected to decline by around 3% from R390-billion in 2015, which was well off the 2008 peak of R411-billion.

He said it was, thus, important for Itac to accelerate its work to finalise the scope for increasing protection levels for downstream industries.

As a result of the increase the HRC price would rise by R600/t from April 1, but AMSA market intelligence head Hannes Basson highlighted that the increase followed on from a 30%-plus fall in steel prices during 2015.

Basson also stressed that, while demand conditions remained weak domestically, there had been significant changes in China, which had resulted in a cut back in exports, which had influenced both supply and prices.

AMSA said the changes meant that the flat-steel basket would rise from $395/t in February to $428/t in March, against the current landed price of HRC in Gauteng of $440/t. The price of iron-ore had also increased by more than 20% over the last month.

Nkosi stressed that the increases came amid serious sustainability pressures, with its Saldanha Works under review its Vanderbijlpark Works currently losing about R300-million a year.

“The challenges faced by ArcelorMittal South Africa and the local steel industry are still persisting, and they are putting the company and the steel sector in a difficult position,” he said, noting that imports were persisting at 30%-plus levels despite the recent tariff increases.