Industry organisation the Electric Steel Producers of South Africa says a financial bailout of the long steel operations of troubled steelmaker ArcelorMittal South Africa (AMSA) will further distort market conditions in a steel sector already under severe domestic and international pressure.

Significant price reductions were announced by AMSA in its long steel products during the week of April 21 to 25, which came at a time when the rest of the industry, which does not have the luxury of State financial support, had to increase prices owing to a shortage of scrap metal, the organisation says.

The “potentially disastrous” distortion of the market owing the government intervention can lead to more job losses in the long-term than what the AMSA bailout temporarily saves, it adds.

“The R1.7-billion loan provided to AMSA, together with the Temporary Employer/Employee Relief Scheme funding the wage bill, puts the rest of the long steel industry at a significant disadvantage, will do more harm than good for the sector and could lead to even more job losses,” it argues.

These price reductions, which are inexplicable following AMSA’s enormous losses and which it is unwilling to fund itself, are, in all likelihood, an early indication of how the bailout will create an even more uneven playing field for the steel industry, the organisation asserts.

“The current constrained economic realities require smart regulatory interventions that come at minimal cost to the fiscus, but will help initiate a turnaround in the sector,” says electric steel producer Cape Gate chairperson Oren Kaplan.

Further, the bailout has seemingly benefited AMSA to such an extent that it is shielded from economic realities, such as the need to make a profit. Bail-outs, such as that afforded to AMSA, undermine the principles of fairness, efficiency and accountability, the organisation states.

SCRAP METAL SHORTAGE
Electric steel producers use cleaner and more sustainable methods that transform scrap metal into high-quality long steel than conventional steel production. This method aligns with the global shift towards environmentally sustainable steel production, it points out.

“Our industry is currently being affected by a chronic shortage of scrap metal. The shortage is putting downstream supply at risk and pushing up the costs of production. A scrap ban will avoid the threat of a temporary reduction in employee working hours and operational stoppages. Supply of scrap must be secured,” explains Kaplan.

Electric Steel Producers of South Africa has requested a reinstatement of a previous export ban on scrap metal from Trade, Industry and Competition Minister Parks Tau in March, but has not received an answer yet, he adds.

“This is a pivotal moment for the South African steel industry. We share the Minister's goal of a thriving and sustainable steel sector.

“We are eager to engage with government and industry stakeholders in an urgent discussion about the future of our industry and the thousands of jobs supported by electric steel producers.”

Electric steel producers currently supply 75% of the country's needs and employ thousands of people. They are also actively investing in upgrades and product diversification to eventually absorb most of the gaps that will be left when “outmoded long steel mills, such as those of AMSA, are finally closed”.

“Where gaps will emerge initially, in areas like the automotive sector, limited and temporary imports can help ensure continuity. However, these gaps are not substantial enough to justify the exorbitant cost of artificially sustaining the AMSA plants,” Kaplan says.