If you have an interest in what is happening in the Steel Industry, the effect of Government's protection of ArcelorMittalSA and the impact thereof on the Steel Downstream, this article is a must read (Gerhard Papenfus).

Let’s steel ourselves for ArcelorMittal reality check

What is the point of protecting, at great cost to consumers, a rickety primary steelmaker?

By Peter Bruce

Published in BusinessDay on 22 August 2024.

If you’re looking for a politician or a policy think-tank stuck in the past you’ll find both arguing that making steel is somehow a strategic imperative, vital to our future. In SA, where we produce just 0.02% of the world’s steel, hosting a steelmaker has become an article of faith among the new industrial policy elite.

Back in the day I covered the steel industry in the UK and then in West Germany for the Financial Times, and I get the romance of it all. Watching a giant continuous casting machine push out a white-hot steel slab at British Steel’s giant Ravenscraig integrated steel plant in Scotland in 1983 is an abiding memory of my early life as a reporter.

Ravenscraig was the biggest site of continuous casting in Europe, a symbol of British industrial might, but like so much of the Western steel industry even then its days were numbered. It shut down in 1992. Today it is an open field — not a trace of it remains.

The only maker of raw steel in SA is ArcelorMittal, which bought Iscor 20 years ago. It teeters constantly on the brink of disaster. Its modern Saldanha plant is mothballed. Last year it announced it was closing its long products division in Newcastle (predominantly rebar for what is still, despite many government promises to kick-start an enormous infrastructure build, a dormant construction industry).

A scrambled deal with the government just before the election kept Newcastle open. For now. And the flat steels business at Vereeniging struggles to make money. The kit — its blast furnaces and its continuous casting machines — is old and tired.

The world produced 1.89-billion tonnes of steel last year, of which ArcelorMittal SA and mini-mills that use electric arc furnaces to make new steel contributed 4.87-million tonnes. India was second biggest with 140.7-million tonnes last year. The US came in fourth, with 81-million tonnes. The UK did just 5.6-million tonnes. SA produces more steel than Greece, Norway, Bulgaria, Hungary, Slovenia and Czechia combined.

But with the collapse of the Chinese property market, steel prices have again collapsed and the world is awash with the stuff. Steel today is just another commodity, and there is probably more steel on the high seas at any one time now than SA could consume in a decade. That’s not necessarily saying much — last year we consumed about 4.5-million tonnes.

A quarter of that is imported though. The local auto industry doesn’t use domestic flat products because the quality is poor and the steel industry’s last hope is that the  government will finally get its infrastructure build going. It’s worth almost R1-trillion if you put all its many plans together.

It’s a big ask. Former trade, industry & competition minister Ebrahim Patel bet on the infrastructure build kicking off during President Cyril Ramaphosa’s first term. He imposed stiff new protectionist tariffs on imports, banned much of the country’s scrap metal exports and drew up a steel master plan in which he insisted that “opportunities exist for SA industry to replace imports along the steel value chain ... Initial estimates are that about 200,000 tons (and possibly up to 500,000 tons) of imported final products could be replaced, generating about 800 direct jobs and adding about R7bn per year to GDP.

“The industry associations in each sector are being requested to propose what industry will do to replace imports cost-effectively and what is required from government, labour and other stakeholders. They will consult with the full supply chain in each case, from the product down to the steel supplier. They will be urged to make a preliminary report to the [department] and the [Industrial Development Corporation] within three months, setting out what is possible ...”

But Patel had over-regulated and over-planned, down to the last paper clip in the value chain, and it was not to be. The big question now is what his successor, Parks Tau, will do. Does he dig Patel’s hole deeper or does he strike out on a new path? He doesn’t have much time to decide.

I idly suggested recently that with all the cheap Chinese steel available now we should lift all import barriers and use the affordable steel available in the (newly) promised infrastructure build. It didn’t go down well.

But the more I think about it the more I warm to the idea. You don’t save jobs by protecting a rickety company like ArcelorMittal in SA. Patel’s master plan excluded possibly hundreds of small businesses, fabricators that employ many more people than ArcelorMittal’s 6,000 staff.

Not everyone can afford the wages agreed by big companies (and agreement is required to access the privileges in the master plan). Worse, automation in the steel industry is so advanced that the continuous cast I saw at Ravenscraig that day 40 years ago can be controlled now by just two or three people a shift. Compete with that.

Cheap and plentiful steel is key to unlocking the infrastructure build. The state could even create a strategic reserve. And if the local industry can add sufficient value to the products it makes that same imported steel could unlock huge opportunities for our industry.

I don’t see the point of protecting, at great cost to consumers, a primary steelmaker that just two months ago was preparing to close its production of construction steels entirely. Given the collapse in prices it’ll soon be at breaking point again, and when it gets there are we really going to put all our eggs in its basket again to protect it?

Just 15 years ago the government was boycotting ArcelorMittal because its prices were too high. Eskom was forbidden to buy its steel to build transmission line pylons until ArcelorMittal boss Lakshmi Mittal flew in for a secret meeting with then president Jacob Zuma and the problem went away.

Patel did begin to build what might be a commercially feasible mini-mills sector, which, along with an ArcelorMittal stripped of the burden of actually making primary steel, could still roll it into bars and beams and plate and coil from a far cheaper, imported, basic slab.

That’s where the margins and the jobs are. We lose nothing by facing up to reality.

Peter Bruce is a former editor of Business Day and the Financial Mail.

Image credit: Sunday World

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