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Steel Industry: AMSA - Yet Another Price Increase

Posted in: Opinion pieces
Comments: 0
Date Added: 2016/11/21

STEEL INDUSTRY: AMSA – YET ANOTHER PRICE INCREASE

AMSA has once again increased steel prices by about 10 percent, claiming to follow the so-called ‘basket’ of pricing levels, which they have agreed with Government.

HISTORIC BACKGROUND

Before international prices dropped below AMSA's production cost, amidst huge criticism, AMSA employed ‘import parity pricing’. This lucrative arrangement enabled them, notwithstanding their 80 year old antiquated steel plant, to make huge profits.

When international steel prices dropped below their production cost, AMSA turned to Government for duty-protection (which they got). They also somehow convinced Government that the 'price basket', which they agreed upon with Government, should not include Chinese and Russian prices, which, incidentally, represent more than half of international steel production. It is our view that the 'price basket' is nothing else than a new, albeit very poorly disguised form of import parity pricing. However, there are two distinct advantages for AMSA:

  • the exclusion of Chinese prices in the 'price basket'; and

  • a 10 percent customs duty on imports.

 

What a cosy arrangement?
This is indeed a fine example of protectionism.


AMSA’s application for a further 30 percent safeguard duty is pending. They opted for an application for safeguard duties since they failed to prove that China is dumping steel in South Africa.

THE INTERNATIONAL PRICE OF STEEL VS THAT OF AMSA

The average international selling price for steel (HRC base) is $378/tonne, recovering from a low of $250/tonne. AMSA’s current selling price to the local market in South Africa is $625/tonne and they are still not profitable. Mills worldwide made losses when the steel price was at $250/tonne, but at the current rate of $378/tonne modern mills have become profitable. This is due to AMSA's antiquated steel mill with its exceptionally high production costs.

They simply cannot compete internationally – and the downstream is forced to pick up the tab.

SCRAP THE 10 PERCENT DUTIES!!

In an online petition, a total of 2,137 downstream steel companies have expressed their support of NEASA lodging an application to have the 10 percent customs duty removed. This application is currently being processed.

AMSA’s 30 PERCENT SAFEGUARD DUTIES APPLICATION

NEASA is doing everything in its power to prevent AMSA’s application for a safeguard duty to succeed. We will continue our campaign in this regard.

This opinion piece is by Gerhard Papenfus, Chief Executive of The National Employers' Association of South Africa (NEASA).



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