The National Employers’ Association of South Africa (Neasa) has called for the scrapping of steel import duties, which it says are negatively impacting on South Africa’s downstream steel sector.

Neasa CE Gerhard Papenfus says primary steel producer ArcelorMittal South Africa (AMSA) is unable to “compete with international production facilities”.

AMSA last week reported that domestic steel demand was expected to remain subdued, owing to persistently low economic growth and sustained pressure on infrastructure spending in light of serious fiscal constraints and financial problems at several State-owned companies.

As such, AMSA said it had implemented a business transformation programme to reduce costs to $50/t by 2021, including through efforts to debottleneck its operations in Vanderbijlpark, Newcastle and Saldanha Bay.

However, Papenfus tells Engineering News Online that, for AMSA to compete internationally, it will have to invest in modern production facilities, for which there is “simply no alternative”.

Neasa states that, instead of upgrading its mills, “AMSA enjoys government protection” by means of import duties, currently at 20%. It argues that this deters the downstream steel industry “from importing cheaper, better-quality steel”.

He says these duties “have to be scrapped”.

This arrangement severely disadvantages the steel downstream, Papenfus laments, who believes that the current import duties are causing steel downstream to be “uncompetitive . . . serving as a slow poison”.

This, he adds, will gradually lead to the decline of the downstream steel sector, which is AMSA’s client base.

Import duties are exacerbating the local downstream steel industry’s challenges as more expensive local products have resulted in a loss of export markets and the loss of local customers.

It has also resulted in finished products now being imported, which, in turn, has caused job losses, Papenfus states.

However, AMSA CEO Kobus Verster last week said the duties had been effective in reducing imports from China, but that imports from Taiwan and Russia had increased materially, as imports from these countries were initially below the volume threshold to trigger the safeguard.

Taiwan has since breached the threshold and is thus subject to the duty, but Russia imports remain below the stipulated limit.

He agreed that downstream steel fabricators in South Africa remained vulnerable, owing to the fact that tariff protection had not been extended to imported semi-finished and finished steel products.

Meanwhile, Papenfus says AMSA is also applying pressure on embattled State-owned Eskom by seeking relief in electricity tariff increases.

With AMSA’s steel mill 60% less economic in terms of electricity use, according to Neasa, Papenfus says that, should Eskom agree to the tariff relief, the “burden of paying for AMSA’s electricity use will shift from AMSA to the South African public, including the downstream steel sector”.

In this respect, AMSA reported last week that it was “equally concerned about what the group described as “unaffordable” electricity, port and rail tariffs”, which it said were above benchmark levels across the global ArcelorMittal Group.

While the group does not publicly disclose internal benchmarks, AMSA reported that the information had been shared with Eskom as part of efforts to secure a two-year special electricity tariff dispensation.

Talks were continuing with Eskom, despite what AMSA CFO Desmond Maharaj described as an “unfavourable initial response” from the power utility.

He further noted that electricity comprised about 10% of overall production costs at AMSA, but made up 30% of the cost of “transformation”, which excluded raw materials costs.

In the interim period, the cost of AMSA’s raw material basket had increased by 16% in rand terms, with iron-ore rising 33%, coking coal by 15% and scrap by 2%. In dollar terms, the basket remained unchanged.

Papenfus says it is imperative that government “urgently decides which priority demands preference”, with the options being either AMSA or the downstream steel sector.

“A thorough assessment in this regard will have to be made urgently,” he states, telling Engineering News Online that an investigation in this regard is the function of the International Trade Administration Commission of South Africa, “if [it can] be convinced to act in the interests of the broader industry and South Africa as a whole”.

Neasa will, in the interim, continue to encourage government to conduct an assessment on AMSA’s impact on the South African downstream steel industry, says Papenfus.