More than 600 tariff codes are under review, though not everyone is convinced ArcelorMittal should be saved.
Government is embarking on the largest ever review of steel tariffs just as ArcelorMittal SA (Amsa) announced the closure of its long steel business, including its Newcastle and Vereeniging plants as well as its rail and structures operation.
This comes just months after Amsa received a 52.81% anti-dumping duty on structural steel. If that’s not enough to keep its plants running, then the problems clearly run much deeper than competition from imports.
The anti-dumping duty comes on top of a 10% duty on imported long-rolled steel, which is the maximum allowable under SA’s commitments to the World Trade Organisation.
SA’s steel industry is a sea of competing interests – some calling for further protection, others lobbying for more open markets.
Last week, Gerhard Papenfus, CEO of the National Employers’ Association of South Africa (Neasa), called for the scrapping of import duties on all long steel products with immediate effect now that the company will no longer be involved in long steel production. The only purpose in keeping tariffs on long steel products is to generate revenue for the state.
Others have blamed Amsa’s woes on an oversupply of finished products in the domestic market, which has pushed long-steel products below international prices.
“As the government and the industry grapple with an oversupplied steel sector and weak local demand, they must not prioritise saving the older, heavily polluting and poorly structured Amsa above all else, but rather look at saving as much of the whole steel market as possible,” wrote Cape Gate chair Oren Kaplan in Business Day.
“Amsa should not be saved at the expense of the rest of the long steel industry.”
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Tricky situation
A presentation by XA Global Trade Advisors on Tuesday highlighted government’s predicament.
Mini mills, which produce long steel (as does Amsa), receive R8.5 billion a year in subsidies, while Amsa is unsubsidised.
The Industrial Development Corporation (IDC) has a R14 billion exposure to these mini mills, nearly 10 times the market cap of Amsa.
These mini mills use scrap metal as their raw material, which benefits from a price preference system (PPS) that was introduced in 2013.
The PPS prohibits the export of scrap metal unless it had first been offered to domestic consumers at a discount to the international price at the time of sale.
That created problems of a different kind, prompting the government to introduce an export duty on scrap metal.
This was done to plug loopholes that allowed local buyers to access scrap at discounted prices and then export at a huge profit.
Plugging one loophole inevitably leads to another arising elsewhere – a case of playing whack-a-mole, according to Donald MacKay, CEO of XA Global Trade Advisors.
The government and IDC have bet big on mini mills. One of these is currently in business rescue with a debt exposure to the IDC of around R1.5 billion – equivalent to Amsa’s current market cap.
Some R3 billion of the IDC’s book is in business rescue, and two-thirds of this is in mini mills.
There’s clearly a problem in the mini-mill market. Almost all mini-mill product from SA is dumped on foreign markets so there is a risk of countervailing duties in these countries in future, says MacKay.
“We have a problem here and government has to make difficult decisions. If it stops its support for mini mills, the IDC would take a huge bath.”
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Options
MacKay says among the options facing government as it reviews 611 tariff codes for steel are to:
- Remove the export duties on scrap metal – that’s feasible and likely to happen;
- Remove the more noisome aspects of the PPS on scrap metal – this can also be achieved without too much trouble;
- Impose further duties on imports – this will not solve the problem in long steel, which is already swaddled in duties;
- Impose import duties/PPS on iron ore – this is feasible but would mean a transfer of value from Kumba Iron Ore to Amsa, which is a form of subsidy paid by mining to industry;
- Impose greater designation requirements on government-funded projects – this is tricky given the 2022 court decision overturning government’s preferential procurement policy;
- Subsidise Amsa – perhaps not popular, but may be considered; and
- Nationalise Amsa – also unlikely but not out of the question; if Amsa cannot run it efficiently, nothing suggests government can do any better.
Amsa CEO Kobus Verster has called for higher duties on imported steel from China.
MacKay believes there is a possibility of these duties being increased to around 15%. This is still well short of the almost 80% tariff imposed by Mexico on Chinese imports, Brazil’s 25% and other protective measures enacted by the UK, India, Japan and others.
The International Trade Administration Commission of South Africa (Itac) has given itself a June 2025 deadline to gazette its review of steel tariffs, which is almost unprecedented in terms of speed and the scope of ground to cover.
Itac oversees SA’s trade administration and deals with applications for tariff support, with applicants expected to demonstrate reciprocity in terms of satisfying government’s employment and investment objectives.
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Some R66 billion in steel imports are up for review, with intermediate goods attracting most of the duties. Of the R83 billion collected annually by the South African Revenue Service (Sars) on duties, steel accounts for R3.5 billion, and 84% (R2.9 billion) of this is on intermediate goods.
The fact that companies are prepared to pay R2.9 billion in duties in a year tells us that these products are not available locally at competitive prices.
Itac’s aim is to promote growth and employment using trade policy. But it has become clear there are many competing interests within the steel sector that will take some juggling to satisfy.
Government has to grapple with these issues as it undertakes its review of steel sector duties.
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Affected parties have four weeks to respond, with a possible two-week extension. MacKay advises companies to make their voices heard rather than sitting on the sidelines.
“This will be an enormous review covering 611 tariff codes, split over four chapters. Of these codes, 325 can have duties raised and 286 are at their bound rate, which means they can’t be increased any further,” says a report by XA Global Trade Advisors.
Says one Amsa customer at the industry briefing on Tuesday: “I feel for Amsa, but we cannot be subsidising a business that does not meet international KPIs [key performance indicators]. There’s work to be done at Amsa. We ordered steel plates two years ago and have still not received them.”
Another downstream steel producer said China is selling at material cost plus 10%, making it virtually unbeatable on price. “We approached Itac several years ago and they told us to close your business and start importing.”
“For Amsa not to close, government will have to come to the party. Something substantial will have to be put on the table [to avert closure],” says MacKay.
This article was republished from Moneyweb. Read the original here.
