Steel baron Lakshmi Mittal wants the government to help rescue ArcelorMittal's struggling South African operations by imposing a 10% import duty on steel, without which the company is threatening to close down plants and cut jobs. Mittal was in the country last month to brief the government, including President Jacob Zuma, on the challenges faced by the steel industry. Relations between the government and the company have not been the easiest since the company was formed after parastatal Iscor hived off its coal assets into Exxaro Resources and its steel operations into what became ArcelorMittal South Africa in 2004.story_article_left1The state had hoped, in vain as it turned out, that the deal would lower steel prices for the economy.Its threat of plant closures is weeks away, and will hit towns such as Vereeniging and Vanderbijlpark in Gauteng, where steelmaking is the bedrock of the local economies.In October last year, ArcelorMittal SA said it would find a viable business model for the Vanderbijlpark plant within nine months or reconsider its future given its operating losses. By the end of this month, a decision will be made.The Vanderbijlpark plant employs 4500 people and accounts for 45% of the company's sales, but it has been the biggest contributor to ArcelorMittal SA's operating losses."Rome is burning, every single day the industry loses millions and it's really, really concerning," Paul O' Flaherty, the CEO of ArcelorMittal SA, said this week.The problem for ArcelorMittal SA is not just cheap metal coming from China, which is shipping excess steel that its slowing economy cannot use, but high, uncontrollable costs, poor rail infrastructure in South Africa and an economy almost grinding to a halt.The local economy "is dead, there's just no infrastructure spend, it's very concerning", O'Flaherty said.He said ArcelorMittal SA had been in talks with the government since September last year about challenges in the industry, including the collapse in iron ore prices that began towards the end of last year (and which resulted in a plunge in the steel price) but from which ArcelorMittal SA gets little benefit due to its current pricing agreement with Kumba Iron Ore.mini_story_image_hright1"How do I bring my costs down further than we have with all the efficiency initiatives we have done?" O'Flaherty asked."We have many significant uncontrollable costs from a price perspective such as iron ore, electricity and natural gas. In addition, how would this industry and its customers afford the mooted carbon tax?"The steel industry has been central to reindustrialisation plans touted by the government and the ANC. But O'Flaherty said if the primary steel industry was fundamental to the economy, then to ensure the industry's survival "we need import protection, we have to have import protection across all products, for everybody".ArcelorMittal SA, which is 46.8% owned by Mittal, one of the world's richest men, is the biggest steelmaker in the country, supplying 90% of the metal in the domestic market.Local steel companies are hoping that an import tariff will be implemented within days.Momentum Asset Management's Wayne McCurrie said the domestic steel market was just too small to compete with the likes of China."It's not big enough to justify a big steel mill and the volumes required to produce steel at a competitive unit cost that would make the South African company competitive. While ArcelorMittal SA is one of the most efficient steel operations, it is hamstrung. It sits with global competitors that are far more efficient because they can produce products far cheaper when it comes to unit costs per kilo," McCurrie said.The local market is also struggling with a shrinking manufacturing sector that used to contribute 19% to the country's economy in 1993, and now contributes less than 15%.On top of that, local steel companies have to cope with huge increases in electricity prices and labour costs.story_article_left2Trade and Industry Minister Rob Davies told Business Times the department had been speaking with the likes of ArcelorMittal SA, and would make a "package" decision around an import tariff and a pricing model in coming weeks.The decision is long overdue as the country's second-largest steel producer, Evraz Highveld, is struggling to make a successful exit from business- rescue proceedings.Piers Marsden, the business-rescue practitioner, said South Africa was the only Brics country without import protection, and it would be beneficial for the government to implement a tariff to ensure the long-term sustainability of the local steel industry.Markus Hanneman, the CEO at Scaw Metals, which is largely owned by the government, said South Africa had become an obvious dumping ground for cheap steel and had been flooded with imports from China.During the first quarter, 488,000 tons of cheap steel had been imported - almost half of the volumes imported during the whole of last year.derbyr@sundaytimes.co.za, prinslool@sundaytimes.co.za, benjaminc@timesmedia.co.za..