STEEL INDUSTRY: AMSA vs the Steel downstream. AMSA’s pricing policy is hostile to SMME’s

AMSA vs the STEEL DOWNSTREAM

AMSA’s PRICING POLICY IS

HOSTILE TO SMMEs

by Gerhard Papenfus

Dear Steel Industry employer

With regard to the South African steel crisis, two matters stand out:

• the one is simply inexplicable;
• the other one entirely obvious.

It is inexplicable why the Minister of Trade, Industry and Competition (DTIC) protects an uncompetitive steel monopoly, to the detriment of an entire steel downstream, unless you are able to enter the mind of our socialistically inclined Minister of Trade and Industry, which no businessman is able to do, or unless you are somehow benefitting through the DTIC/AMSA arrangement.

It is however entirely obvious that this socialist, anti-market scheme is designed to benefit a few, to the detriment of an entire steel downstream, which comprises 99 percent of businesses in the sector.

AMSA and the DTIC have no regard for the interests of the steel downstream; the whole sham is designed to benefit a few to the detriment of the rest.

One example is AMSA’s pricing model, which operates as follows: AMSA publishes its price list and any business, where credit is approved, can buy at the prices listed in the published document. The large steel companies are then approached by AMSA and offered a much lower price, on condition that orders must be placed in advance and for high volumes.

These required volumes are so high that only a handful of the biggest customers can utilise these economies of scale.

These larger entities are then positioned to sell to the smaller companies, even below AMSA’s listed price. This has the effect that small and medium steel companies, that compete with the bigger companies, are at a disadvantage in terms of input-price.

In a normal market dispensation, it is common practice that a discount be granted if volumes are higher, but in the case of AMSA, they have exacerbated this effect by a magnitude far greater than the norms which exist in world trade.

However, with regard to sub-Saharan Africa, AMSA has reversed this policy, simply because it serves their interests, to such an extent that it leads to the export of South African jobs, to our neighbours and beyond.

In respect of sub-Saharan Africa, AMSA practices a strategy of selling to customers in Africa, who buy a lot less than their South African counterparts, at a much lower price. AMSA, in fact, has no choice as they don’t enjoy the tariff protection that they have in South Africa.

The effect is that South African companies rather set up production facilities outside of South Africa in order to have access to the cheaper input-price of raw material from AMSA.

The secondary result is that smaller South African manufacturers that used to export their products to Africa, now compete with manufacturers in Africa, which has a much lower input-cost, despite also being supplied by AMSA.

The only way to effectively neutralise this manipulation of the South African steel market, would be to remove all remaining duties that protect AMSA, which will result in the import of raw material, which will keep prices in check.

For many years NEASA has campaigned against the prevailing unfair AMSA/DTIC steel practice in South Africa. Although some change was effected, the introduction of the latest centrally controlled ‘Steel Master Plan’, has merely confirmed that consultation with the downstream is a farce and that the DTIC will press ahead with their plans, regardless of its consequences.

Industry has to stand up against it, must find a way, and must stand together.

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All submissions received will be treated as confidential.

Gerhard Papenfus is the Chief Executive of the National Employers’ Association of South Africa (NEASA).

Image Credit: HRB Tinvo

For more information:
NEASA Media Department
media@neasa.co.za