Government steps in to save South Africa's struggling steel industry

Tawanda Karombo

The government is racing against time to avert the collapse of the steel industry, engaging major player ArcelorMittal South Africa (Amsa) in crucial negotiations aimed at sustaining its longs steel business.

Amsa had decided that it was closing its longs steel manufacturing plants in Vereening and Newscastle by April this year, but said on Thursday that it was engaging the government and financiers “regarding funding and related matters to enable the deferral of the wind-down of the longs” business.

The company and government were also discussing steel industry issues that were affecting the viability of Amsa’s operations, including an influx of cheap scrap and imports of cheaper steel as well as logistical constraints.

The Congress of South African Trade Unions (Cosatu) said it was supportive of these measures.

It said it was “pleased government is assisting ArcelorMittal South Africa keep its longs steel plant in Newcastle operational while a plan to make it sustainable” was sought.

While Amsa has previously blamed the government for not acting speedily to fix the operating environment constraints it was facing, the Department of Trade, Industry and Competition (the dtic) has laid out financial interventions to ensure Amsa preserves its production capacity.

Through the Industrial Development Corporation (IDC), the dtic said the government provided financial assistance of R380 million to Amsa last month, This was in addition to the R1 billion working capital facility extended by the IDC in June last year.

Additionally, funding of about R417m has been approved for Amsa under the Temporary Employee/Employer Relief Scheme (TERS) to sustain 2 982 of the company’s employees over the next 12 months.

“As a condition of this support, Amsa is required to participate in the Productivity SA turnaround and recovery programme. These interventions are not designed to provide direct financial relief to AMSA but are part of a broader strategy to protect South Africa's steel industry and ensure the preservation of its industrial capacity,” said the dtic.

The closure of Amsa’s longs manufacturing plants would result in thousands of employees losing their jobs and many more in the value chain, pushing the country's already high unemployment rate even higher.

South Africa’s economy has been bleeding jobs across mining and manufacturing, with companies blaming Transnet for ore stockpiles and low production capacity due to challenges with freight rail and port operations.

At the same time, the International Trade Administration Commission (ITAC) has kickstarted a review of the tariff structure for the steel industry and an investigation into the possible introduction of an import surveillance system for the sector.

ITAC has invited input and representations from industry players as it pursues the potential discontinuation of rebate on some steel products due to their unintended negative consequences in the domestic manufacturing industry.

It is also looking at the possible increase in the rate of customs duty to the respective World Trade Oraginsation bound rates, as well as to determine the extent to which the challenges faced in relation to an influx of low-priced imports arising from global structural overcapacity constitutes an ‘emergency’ situation.

This would necessitate emergency actions such as “the suspension in whole or part, or withdrawal or modification of any tariff concession, to the extent and for such a time as may be necessary to prevent or remedy further” harm.

“Considering the worldwide steel production overcapacity, increased trade protectionist measures implemented by some countries, and associated trade diversions occurring globally, SA’s steel value chains are facing serious sustainability challenges, which are impacting negatively on the country’s socio-economic objectives,” noted ITAC.

It further explained that persistent local conditions of slow economic growth, depressed demand, energy and freight logistics challenges were further exacerbating challenges faced by the local steel sector.

BUSINESS REPORT