Government called to take the lead in restoring the steel industry

The steel industry is facing multiple challenges that need urgent attention before they become more expensive to fix or potentially irreparable. 

The Department of Trade Industry and Competition (DTIC) has asked the industry to make submissions on defining the problems and what interventions need to be taken.

This follows an engagement with Minister Parks Tau to reach an agreement on how the industry can be assisted.

The submissions must also define long-term growth targets for the industry and what would be the measures of success.

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Policy issues

Lucio Trentini, CEO of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) has attributed the de-industrialisation trajectory in the sector to the lack of a well-considered and all-encompassing metals sector industrial policy.

“To date, policy responses have tended to be in some instances not clearly thought through and/or partial in their consideration, without taking into context the full value chain effect.”

Factors that contributed to the issue

The federation is of the view that the issue at hand is a result of a “toxic combination” of factors. The first is the absence of an all-encompassing, holistic metals/steel and engineering sector policy that balances the needs of up and downstream.

Another factor is the increasing erosion of the industry’s competitiveness in the export markets and inadequate support for increased export efforts in the context of a small and shrinking domestic market.

“A structured arrangement which favours offshore rather than local capability.

“The most immediate challenge facing the sector (and the policy maker) now is how to manage pedestrian demand/consumption in an environment of over-capacity.”

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Solutions to the issue

Trentini added that the question is how can the industry improve the cost structures across the value chain to position the South African primary steelmaking in the lowest quartile of the global steel cost curve, increase downstream value addition to claw back on the local market share, and increase value-added exports.

“In arriving at answering this question, some critical considerations have to be taken on board and these include adopting a strategic approach and balance to investment between blast furnace and mini-mill capacity.”

Other solutions include leveling the playing field with respect to incentives e.g., scrap metal, iron ore, etc; incentives and support for foundries; the role of international trade instruments and greater protection for the value chain; and the critical role of designation for state procurement.

Interventions

“However, in the immediate term, we propose that there are interventions that the government and in turn, the DTIC, in being the final arbiter on formulating a balanced metals/ steel and engineering industrial strategy can act on in contributing to arresting the decline faced by the sector, these areas include an act on imports through trade instruments, particularly where there a pressure points building (which is across the value chain).”

They also want procurement practices, with an emphasis and preference for local where competitive capacity exists and act on transgressing state organs. Including intervention in logistics costs and operation Vulindlela to coordinate and consolidate national demand for steel-related projects.

“A holistic approach that protects the diversity and sustainability of the entire steel value chain is essential for the future success of the South African steel industry.”

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