This is our fourth letter addressed to you regarding this very important matter. Our previous letters (respectively dated 15 March 2016, 18 May 2016 and 8 June 2016) are enclosed for ease of reference.
In our view the current crisis in the Steel Industry is caused by three interventions:
the introduction of protectionist duties;
the consequent creation of an environment in which opportunistic and unchecked price increases by AMSA is implemented; and
the paralysing effect of the looming safeguard duties.
Minister, the first meeting of the ITAC Pricing Committee to investigate the impact of duties on the downstream Industry took place on Monday, 20 June 2016. However, concurrently with the commencement of the Pricing Committee’s activities, further duties were announced on nine more tariff codes. It has become clear that nothing prevents AMSA from applying their import parity pricing, but now with the new duties priced in.
Government have long been suspected of steam-rolling these duties and that consultation with the downstream Industry is pure window-dressing; or perhaps too little too late. This is probably fuelled by government's belief that South Africa, in comparison with other countries, is behind in protecting our Steel Industry. With a single monopolistic primary steel producer that produces steel at high prices, South Africa’s position is vastly different.
There is an ever increasing sentiment among downstream manufacturers, namely that South Africa does not need a primary liquid steel producer (AMSA). Modern mills, using direct rolling technology, use up to 50 percent less energy than required by AMSA’s steel production processes – this is just one very important reason why steel from China, among others, is cheaper. Technologically outdated mills cannot be upgraded to use direct rolling and AMSA would therefore have to invest or keep on manufacturing expensive raw products for the downstream Industry.
AMSA's so called commitment to upgrade its plant is misunderstood. The capital supposedly earmarked for this purpose will be used to build greater capacity on the coating lines in order to cater for increased demand, which they will need if their safeguard duties applications succeed. This commitment does not include the building of a new direct rolling liquid steel producing facility, which is what South Africa needs.
Since South African downstream manufacturers compete in markets who have access to cheap raw material from China, it needs access to the same cheaper material in order for it to survive and expand. It is for this very reason that AMSA is supplying Sub-Saharan Africa at 20 percent less than to our local manufacturers – in order to compete with cheap Chinese raw material. AMSA withdrew the Sub-Saharan overland export rebate from its local customers and have thereby, since local manufacturing cannot compete, already have “exported” thousands of jobs.
There is a further notion that our infrastructure would not be able to handle the volume of imports if AMSA’s liquid steel division closes down. We disagree with that – South Africa imports more maize because of the drought and the infrastructure handles it quite well. This at the very least justifies further investigation.
The downstream Industry is currently paralysed by the already introduced protectionist- and looming safeguard-duties with the resultant constant shedding of jobs. For the downstream Industry to have any prospect of survival and recovery, we urgently request that:-
all protectionist duties have to be withdrawn, and
an immediate announcement be made that the consideration of safeguard-duties is suspended - which, if introduced, will have devastating consequences.