Amsa rebuffs Neasa’s call for scrapping of steel import duties

ArcelorMittal South Africa says it appreciates the opportunity to clarify the factual errors and misperceptions contained in the Neasa CEO’s latest open letter. Picture: Karen Sandison/Independent Newspapers.

ArcelorMittal South Africa says it appreciates the opportunity to clarify the factual errors and misperceptions contained in the Neasa CEO’s latest open letter. Picture: Karen Sandison/Independent Newspapers.

Published Jun 12, 2024


By Tami Didiza

It is regrettable that the Neasa CEO sees fit to publish his letter to the minister of trade, industry and competition and the chief commissioner of the International Trade Administration Commission (Itac) without opening a dialogue and attempting to address the issues contained therein with ArcelorMittal South Africa directly.

The latest Neasa letter, dated May 24, is lacking in context, facts and knowledge, but we would reply as follows: The assertions and claims made by the Neasa CEO demonstrates a limited understanding of the prevailing domestic and international steel industry dynamics.

More so, it is removed from the reality of manufacturing industry requirements and global supply chain costs and complexities.

Various forms of trade measures, including safeguard measures, are legally applicable trade remedies used by various countries to level the playing field, lawfully. These are extensively used in textiles, agriculture, automotive and other industries.

The trade remedies are especially noticeable in capital-intensive industries where there is a propensity for exporting products when local demand is lower, and hence it is common in the steel industry.

Trade measures are being used by almost all steel producing countries for their steel and manufacturing industries, for example, in Brazil, UK, the EU, Malaysia, Turkey, Thailand, Indonesia, New Zealand, Mexico and the US.

A critical global driver of such trade remedies ignored by the Neasa CEO is the state of the international steel market, especially with regard to demand/supply developments, notably in China, the Middle East, Japan, Korea, Vietnam and other countries where excess steel production is being exported or dumped onto the international markets.

Under such circumstances, the World Trade Organisation (WTO) rules allow for remedies that are appropriately available and used by most countries.

The implementation of trade remedies (duties, safeguards, countervailing duty, anti-dumping duties and others) follow a structured process and are evaluated independently by Itac.

This means that any measures implemented cannot be imposed on a whim and must stand up to scrutiny, not only of Itac but regarding any other party that may want to challenge such a decision. It is a highly rigorous process that has a strong legal and governance framework.

Under such circumstances, the WTO laws and remedies that are provided for are used by most countries. The implementation of measures such as duties and safeguards follows a structured process and evaluated independently by Itac.

No measures can be imposed on a whim and they must stand up to scrutiny, not only of Itac but of any other party that may want to challenge such a decision. It is, therefore, a rigorous process within a clear legal and governance framework.

Steel is a product linked to the gross domestic product and demand for steel is a function of economic activity. The economic woes of the South African economy since 2015 have been largely the reason for the economic hardship suffered by companies, with significant bankruptcies in the construction and engineering sector.

This has also been compounded by growing global capacity and unfair trade – where South Africa has been observably and significantly slow to act and respond in a determined and timely fashion.

Notably, for many years, the duties implemented in South Africa have been few and at much lower levels than that implemented internationally. It is not true that the minister implemented duties when requested by the steel industry.

Policy implementation in South Africa in this respect has been slow to minimal. Furthermore, we are on record as having noted that market distortions arising from prevailing scrap policy has had a significant negative impact on ArcelorMittal South Africa, with a discount of 50% to international scrap prices creating economic value destruction.

In addition, aside from global steel dynamics and the increase in imports for the reasons explained above, almost all local manufacturing and mining companies, including ArcelorMittal South Africa, have had to deal with local constraints relating mainly to energy and logistics that have further contributed to the problem.

With respect to the closure of the ArcelorMittal South Africa Saldanha works, the plant was established with the view of exporting steel to the world.

Regrettably, the transport rates for iron ore inputs from Kumba to Saldanha were higher than transport rates to put this iron ore into a Chinese blast furnace. This was compounded by higher electricity tariffs and, finally, China dumping in key markets for Saldanha’s exports.

The Neasa CEO is of the view that “the implementation of steel duties did not prevent the continued decline of ArcelorMittal South Africa”. In fact, due to the lack of import duties, the local steel industry suffered a significant decline, with the closure ofmany foundries and heavy engineering shops – all of which has contributed to the country’s de-industrialisation.

The context and the relevant facts are absent from Neasa’s claims.

The Neasa CEO makes the claim that “ArcelorMittal South Africa undertook to invest in its ”antiquated“ plant in exchange for duties which, for obvious reasons, did not materialise. Again, the claim is devoid of truth.

ArcelorMittal South Africa’s equipment is not antiquated. The blast furnaces are relined or practically rebuilt every 15 to 20 years. Our steel plants produce new grades of steel through research and development.

Rolling and coating lines are improved every year by investment and maintenance and deliver a wide range of high-quality products that support all major sectors of the domestic and regional economies, with world-class material to international norms and standards.

The company’s compliance to international standards plays a major role in attracting high-value industries to increase localisation, as well as in using improved steel products for new applications.

ArcelorMittal South Africa has also continued to invest in its own plant continuously. Our capital expenditure is declared in annual results and is about R1.5 billion to R2bn per annum.

Moreover, ArcelorMittal South Africa plans over the next few years, amongst others, to:

1. Install a new electric arc furnace in Vanderbijlpark.

2. Install 200MW solar facility aligned with its carbon reduction plans.

3. Install state-of-the-art new coating technologies to support expansion of the localisation scope in the automotive, renewable energy and construction industries,

The Neasa CEO fails to acknowledge too that far from being an antiquated producer, ArcelorMittal South Africa is a regional leader in supplying quality products to sub-Saharan Africa and the world.

The Neasa CEO makes the claim that it makes sense for ArcelorMittal South Africa to “pursue a strategy of canvassing increased government protection in order to realise higher selling prices”. This is not accurate.

The nub of the Neasa CEO’s particular interests and contentions is captured in the statement that “as long as ArcelorMittal South Africa receives protection, the downstream steel industry will continue to shrink”.

The facts are exactly to the contrary, as the downstream industry is also protected by duties. The downstream industry enjoys a higher customs duty (15% to 25%) than primary steel (10%).

The trade cases established by various industries, like fasteners, have resulted in suitably securing the local industry with an appropriate trade remedy.

The Neasa CEO calls on the government to “reverse this protectionist strategy … in order to increase competition”.

Yet the reality today is that globally, governments are moving to protect their steel and manufacturing industries with increased trade barriers against the Chinese and Asian onslaught.

For example, the US has increased tariffs to 25% on steel from China. Europe applies tariffs as well as a carbon border adjustment mechanism (CBAM carbon tax) on imported steel beyond a certain quota which is normal trade.

Brazil has imposed 25% on imports from China. Vietnam, which imports almost a third of its steel requirements from China, has also imposed 25% duties on Chinese steel.

South Africa needs to preserve its steel industry as the backbone of its manufacturing industrial economy. The perspective is also echoed by consumers in countries which import their steel from South Africa, such as in the East Africa Community.

The ready availability of quality local made steel also provides a significant competitive edge to local manufacturing compared to manufacturers in countries struggling with currency availability and logistics issues such as port waiting times of 30 days, with two months of supply stuck in port and manufacturers running out of stock to produce.

Contrary to the Neasa CEO’s contention and insinuation, with respect to competition, there is plenty of it locally.

Indeed, there is sufficient competition in South African local supply practically on all products with two flat steel producers, two re-rollers and 12 long steel product producers. The competition is stiff and healthy.

In this context too, the Neasa CEO may wish to take note of the role of Itac, which is to follow a developmental or strategic approach to tariff setting with the objective of promoting domestic manufacturing activity, employment retention and creation and international competitiveness.

Tami Didiza is group manager for Stakeholder Management and Communication at ArcelorMittal South Africa based at its head office in Vanderbijlpark.