4 JULY 2017

 

PRESS RELEASE: STEEL DOWNSTREAM SIMPLY MISLED

 

In a recent article published in the Engineering News, AMSA actually admitted that their service delivery is below standard, but blame low demand as the culprit. According to them, slow through-put results in production problems. They simply do not want to admit that this problem is caused by old technology. If they would have reinvested the billions of Rands that they took out of the country, this would not have been the case.

 

The reasons advanced by AMSA to justify its presence in South Africa and as a result to justify the duties, are not altogether sound.

 

Firstly they claim to have a fair pricing model. Somehow they have convinced Government that fair pricing means that you can hand-pick a few countries, with some of the highest steel prices, and use that average to prove that their price is fair. Half of the world’s steel is produced by China, mainly with modern technology and at much lower prices than AMSA. In fact, most modern mills are trading profitably at the world average price of $450 compared to AMSA’s production cost of $550. This remains the elephant in the room.

 

To claim that protectionism is a worldwide phenomenon, is simply misleading. The protection of an antiquated mill with uncompetitive production-cost, in a monopolistic environment, is economic suicide. It is a huge contributor towards the current decentralisation of the Steel Industry.

 

AMSA furthermore claims that they have preserved jobs. Looking at the broader picture though, this is not true. If AMSA partially close down, which might be the case in the absence of protectionist duties, 1 600 jobs might be lost. Without downplaying the devastating effect this might have on the Vereeniging/Vanderbijlpark area, these job losses are not AMSA’s main concern.

 

The 1 600 job losses are comparatively insignificant compared to the 25 000 jobs lost in the downstream over the last twelve months – and the high steel price no doubt is a prominent contributor.

 

The 12 percent safeguard duties, apparently about to be introduced, will simply speed up the current jobs bloodbath. Manufacturing will cease at many factories in South Africa and the finished product will be imported – all for the sake of protecting a monopoly.

 

According to AMSA they would spend R4,6 billion to upgrade their plant. What should be taken into consideration in this regard is that they recently withdrew R3.2 billion out of the country by means of a rights-issue. This happened after Government accepted their promise of the R4,6 billion investment. Secondly, the R4,6 billion is mainly earmarked for purposes of an expansion in their coating-division to further dominate the market, as well as maintenance that is necessitated by their aging plant.

 

The downstream still insists to know why an about-turn was made after the meeting between Lakshmi Mittal and President Zuma. Before the meeting Government understood the basic principle that manufacturing can only grow if the downstream has the advantage of a low developmental price. After that meeting the duties started rolling in and only a few individuals, namely the owner and five new BEE partners, stand to benefit – while the downstream must fit the bill, to its own detriment.

 

The downstream should have followed the Vietnam-example where manufacturing grew twenty-fold since 2000 due to them having access to cheap raw material from mainly China and Russia. They have no dominant expensive supplier.

 

If the safeguard-duties are implemented in spite of the fact that ITAC found it not to be in the interest of the public, it will probably be challenged in court on an urgent basis.

 

This press release is by Gerhard Papenfus, Chief Executive of the National Employers’ Association of South Africa (NEASA).