Steel shortage: small factories are on their knees

The steel shortage in South Africa ascribed to the lockdown is affecting many small businesses that will have to close down if nothing is done about the shortage, with factory owners literally driving around and on the phone all day to source steel.

When they do manage to find some stock, it is not always of good quality and according to some business owners, this low-quality steel is imported from China. The shortage has also seen prices rising by about 30% based on the market principles of supply and demand.

The reason for the steel shortage is that ArcelorMittal South Africa (AMSA) ceased operations at all its blast furnaces as required by the Covid-19-related lockdown regulations. It completely stopped production for the first time in the history of the integrated steel industry in the country, according to Tami Didiza, group manager: stakeholder engagement and communications at AMSA.

This resulted in an abrupt disruption of the entire steel supply chain, but Didiza said the company was “progressively addressing” the problem of temporary backlogs. The lockdown also resulted in depleted inventories at every stage of the supply chain and the increased demand was consuming everything AMSA produces, resulting in supply chains remaining depleted.

Dirk Coetser, owner of Architects 4 A Change, works in the construction industry where he uses lightweight and other steel. “I cannot find any steel anywhere. If you do find some, it is as much as 30% more expensive.”

The problem is that he loses clients if he is unable to source steel and so far, he has had to pay back one client because he could not complete the work without steel.

“I did buy stock in advance, but now I am running out. I am worried, because I have to start with new projects in January.”

He provides jobs for 10 people and already had to cut their hours because they cannot work without steel. Coetser says he feels bad, because he wants to look after his workers.

Sherwyn Palani, owner of Sher Steel and Indent Manufacturers, does metal work fabrication and agrees that there is definitely a steel shortage.

“I have many orders, to the value of R500,000, but I had to put them on hold because I cannot find steel and if I do, it is of inferior quality imported from China.”

He says due to the shortage, people were calling prices and he bought steel wherever he could get it. Palani employs 14 people and says he was fortunate to be able to source some other work to keep them employed. “Christmas is coming and I have to take care of them.”

Jannie Moolman, owner of MAG Machining and Engineering, does general machining and manufacturing and is also suffering because of the shortage of steel. “Sometimes we get a request for a quotation and two days later no steel available.”

He spends a lot of time looking for steel. “Sometimes you can upgrade to steel that is available, but that is more expensive. If you cannot deliver, customers go to someone else who has been able to source steel.”

The knock-on effect is that it is difficult to stock up on steel because companies have no funds and steel is now 25% to 30% more expensive. Moolman employs 12 to 15 people, but if there is no work, he is unable to pay them.

Members of employers’ organisation, the National Employers’ Association of South Africa (NEASA), were also complaining about the steel shortage.

“We have been in the steel roofing and ventilation industry for 22 years. Over all these years, the current scenario is the most devastating economic disaster for all players. Market availability has now been pushed out to three months to get material in manufacturing roofing products.

“AMSA is fully aware of the negative state that it has created in the broader South African economy, across all sectors of steel manufacturing; yet it sees fit to leave the additional furnace offline with various excuses doing the rounds. There is more to say as we all go under,” one of the NEASA members said.

Another one said a number of projects had to be halted, as he could not source any 180×70 channels. “Disaster! Anybody got a few lengths spare – please!”

“[We have been] severely affected by the import duties and AMSA’s inability to supply. The negative impact has rippled through our customer base,” said another NEASA member.

Chifipa Mhango, chief economist at the Metals and Engineering Employers’ Association, said it was too early to put an exact figure to the number of people who worked in the sector and were affected by the shortage of steel.

“The complaints are sporadic at individual company level, as the shortages are at product level from the primary steel supplier. The steel shortage has been triggered by capacity issues from the main supplier due to lockdown measures. We believe that this will be resolved.”

He did not want to be drawn on accounts that inferior steel was imported from China. The steel industry accounts for almost 1% of national gross domestic product.

AMSA will restart its second blast furnace at its Vanderbijlpark operations in December 2020, and the maintenance of the Vaal Meltshop was delayed. Didiza said AMSA aimed to significantly reduce the temporary supply backlogs during December 2020, which was traditionally a quieter period for the industry.

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