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Mini mill operators say they are ready to take on the slack left by ArcelorMittal’s mill closure, but scrap dealers are less than delighted at this prospect.
Many in the industry fear a feeding frenzy over the corpse of Amsa that will harm the long-term interests of the country. Picture: iStock
Despite reports that a government rescue package is on the cards for embattled steel producer ArcelorMittal (Amsa), the company said on Wednesday that it would continue with the wind-down of its mills in Newcastle and Vereeniging.
The South African government has been in negotiation with Amsa to forestall the shutdown of the country’s long steel business on which automakers and others depend.
The Department of Trade, Industry and Competition (dtic) says it provided R380 million to Amsa in February in addition to R1 billion in working capital provided by the Industrial Development Corporation (IDC) in June 2024.
Further payments of R417 million have been approved by government to sustain nearly 3 000 workers for 12 months under the Temporary Employee/Employer Relief Scheme (Ters), says the dtic in a statement on Wednesday.
No further funds have been agreed for Amsa, though a technical working committee has been established to address policy challenges affecting the steel industry.
Amsa says that without any firm agreement, the wind-down of its mills cannot be stopped.
However, negotiations on funding are continuing. The company has also received numerous approaches regarding strategic alternatives, including for the ‘longs’ business.
“None of the approaches constitute a firm intention to make an offer in terms of the Companies Act. The Company will continue to explore strategic alternatives where appropriate,” says Amsa in a statement on Wednesday.
ALSO READ: ArcelorMittal long steel business closing for good due to policy inaction
Mini mills ready to fill the gap, but …
Meanwhile, several so-called mini mills that use scrap metal as their feedstock say they are capable of taking much of the slack left by Amsa’s wind-down – but they want the government to reinstate a ban on the export of scrap metal that expired in December 2023.
The group includes Cape Gate, Scaw Metals, Fortune Steel, Unica, Veer Steel Mill and Coega Steel.
“The industry is calling on the Department of Trade, Industry and Competition to reimpose the [export] ban so as to give space and time for further engagements around the future of long-term regulatory support like the Price Preferential System and the scrap export duty,” says the group in a statement this week.
“Appropriate regulatory support can maintain a thriving local steel industry that supplies key sectors such as mining, construction, and automotive manufacturing.
“A scrap export ban has been implemented before and its reinstatement would be a relatively easy and inexpensive measure that can boost the industry and signal its resilience after the pending Amsa Newcastle closure.”
The mini mill operators say local industry operations are being affected by a chronic shortage of scrap metal, used in the production of new steel and that puts downstream supply at risk.
What many in the industry fear is a feeding frenzy over the corpse of Amsa that will harm the long-term interests of the country.
The state-owned IDC has a R14 billion exposure to these mini mills, prompting fears of self-dealing when it comes to deciding the appropriate tariff policies for steel.
At the heart of the issue is the Price Preference System (PPS) that was introduced in 2013 requiring scrap dealers to first offer their scrap to local buyers at a 30% discount to international prices.
They must also cover the cost of transport to the domestic buyer, which means an even bigger discount for the mini mills.
ALSO: Concern about SA steel industry: Trump’s tariffs and ArcelorMittal closure looming
Buyers have a ‘bizarre’ amount of power
“The original PPS has grown to bizarre levels that put all the power in the hands of the buyers who, by regulation, may even issue fines as determined by themselves if they are ‘not satisfied’ with a delivery,” explains Neels van Niekerk, executive chair of International Steel Fabricators.
“They can ‘freeze’ scrap, delay transaction completion, and force a scrap recycler to deliver say from Richards Bay to Cape Town for free, but then cancel the sale when the truck arrives in Cape Town without any penalties.”
Several scrap dealers told Moneyweb that the behaviour of some mini mills amounted to sabotage of the scrap export business.
The PPS system is easy to game by placing fake orders with no intention of taking delivery. This keeps local scrap steel trapped in SA with no chance of earning fair market prices abroad.
These companies each melt about 45 000 tonnes of scrap a month, meaning local mills are benefitting to the tune of about R600 million every month.
XA Global Trade Advisors calculates that these mini mills receive R8.5 billion a year in subsidies, whereas Amsa receives nothing.
The IDC’s R14 billion exposure to the mini mills is more than 10 times the market cap of Amsa, which leads many in the industry to question whether it is even-handed.
ALSO READ: Government still talking to ArcelorMittal while Seifsa identifies challenges
System hurts scrap collectors and dealers
The PPS system also hurts the 300 000 subsistence collectors who account for 72% of all scrap collected in the country.
Scrap dealers point out that removing the PPS would allow thousands of collectors to earn a decent living, rather than transferring this value to mill shareholders, which includes the IDC.
“That [the PPS] is why the scrap recyclers are paying the industry, the government and the poor informal collectors a pittance for their valuable scrap assets,” adds Van Niekerk.
The PPS has grown into a “grossly unfair system” that created an oligopoly by forcing scrap recyclers to sell to a select group with huge buying power awarded to them by the PPS regulations.
Scrap dealers are forced to offer their product to the local market at 45-60% below world market prices, and now the buyers want an export ban on scrap to make it even lower.
“The mills have the option to buy the scrap at huge discounts before an export permit will be issued, but now they want to ban the export of something they didn’t want in the first place – [which] already tells the story,” says Van Niekerk.
The Competition Commission has been asked to investigate the scrap steel sector but has yet to do so.
To address the question of scrap steel theft, various suggestions have been made, such as introducing an independent third party to monitor exports at ports and at mini mills before melting.
Van Niekerk says the only viable solution is better policing at source and infiltration of steel theft syndicates.
This article was republished from Moneyweb. Read the original here.
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