Amsa's ageing mill is slowly paralysing industry in SA
Government attempts to keep loss-making South African steelmaker ArcelorMittal SA (Amsa) alive are killing the country's downstream steel industry and costing thousands of jobs, says Gerhard Papenfus, CEO of the National Employers Association of SA (Neasa).Amsa, the country's only steel producer, is protected by 20% import duties, forcing manufacturers in the domestic steel sector to pay cripplingly high prices for steel.The world selling price of steel is $513 (R7,800) a ton. Amsa's cost price to make the same steel is $632 a ton. Its selling price is a whopping $676 a ton."When the world steel price goes down the South African downstream doesn't have the benefit, because we pay Amsa at their selling price," he says. "So it's expensive steel."This is playing havoc with the more than 2,000 businesses in the sector that Neasa represents."In order for Amsa to survive, downstream businesses pay 20% import duties. They have access to cheaper steel but it's made impossible for them so they have to buy from Amsa. That is the only way it can survive."In spite of this cosseting, which ensures it a captive market, the foreign-owned steelmaker is on the ropes. Half-year results released this month showed falling sales volumes, revenue, earnings before interest, taxes, depreciation and amortisation, and a headline loss of R638m.Amsa blames factors beyond its control such as high administered prices for rail, ports and, above all, electricity, which make up 18% of its total costs and contributed to the 15% rise in its cost per ton of liquid steel in the six months to end-June.It has been trying to get Eskom to cut a special deal with it so it pays significantly lower than normal tariffs, but has received "negative feedback"."Their electricity costs are so high because they're using much more than they should be because of their antiquated steel mill," says Papenfus."If you want to compete then you invest in a proper mill, and that is what they must do. You don't go and ask for protection to stay alive. Be competitive to stay alive."He says he has no doubt that electricity and other administered prices "are hammering them". But even if the costs were lower, Amsa would still be uncompetitive and, ultimately, doomed."In the long run they cannot make it. As long as they have their mill their price will remain uncompetitive. You have to have a modern steel mill with modern production methods. That is the bottom line. There's no way around it."You cannot manufacture anything today with a production facility which is 70 years old. Anybody who does that will be out of business."If Amsa was willing to invest in a new mill it would be a different picture, he says. But there have been no indications of this.It is talking about "restructuring", but Papenfus is unimpressed. "At the moment that means firing 2,000 people, not improving their steel mill capabilities. That's not what they're talking about."Having a local steel producer makes sense and would be best for local manufacturers, "but only if it's a modern producer that is competitive. Then of course it's a good thing. We have iron ore here around the corner, so with a modern steel mill we can export."Given the current political climate in SA, he "can't see" the international owners of Amsa investing billions in a new steel mill."My view is that they're saying, 'Let's see how much we can get out of this thing, how far we can take it.'"His concern is that by the time they decide to "pull the plug", the downstream steel industry in SA will be severely damaged. "I believe that day will come. So why keep it alive?"In spite of being protected by 20% import duties, Amsa continues to lay the blame for its poor performance on cheap imports, along with the country's stagnant economy. It is asking for additional duties under nine different codes."The situation is that they tell SA, 'Unless you give us the duty protection we'll close down.' " Papenfus rejects the argument that not having a primary steel producer would expose SA to international price manipulation."What's currently happening is we have to buy from a South African producer which is itself manipulating the price. Their steel is very expensive, and they cannot make it cheaper. In the long run, they cannot be profitable."Because of Amsa's high prices, local companies that buy steel to manufacture products for export are uncompetitive and have lost their markets."Sub-Saharan Africa is no longer buying from them because their prices are too high. They're buying directly from China."The fact that Amsa is contending with factors beyond its control is no reason for keeping it on life support, he says."The point is if we can't compete now with the international market in terms of price, that will be the case tomorrow and next year and forever. Even if and when the market improves. Because the price of your steel remains uncompetitive."Unless it invests in a modern mill and more sophisticated processes, nothing will change. "Amsa cannot make money, and that will remain the case. As long as your price is higher than the steel price elsewhere you will remain uncompetitive."South African businesses that used to manufacture locally and export are now importing the finished product instead because there are no duties on the finished product."There's no point manufacturing here anymore. And that has a severe impact on jobs."Not just the couple of thousand jobs Amsa says it might have to cut in Vanderbijlpark."The impact on the steel industry downstream is not just 2,000 or 5,000 jobs, it's 100,000 jobs. It happens slowly, in businesses across the country that are downsizing and closing, but it's happening."We see it as an organisation that represents them, we see the overall picture. We see how businesses are battling. Every day that these duties exist the downstream is dying."Soon there will be no downstream steel industry to speak of, he says.