Steel duty review puts scores of companies at risk of bankruptcy

The government’s review of the entire steel chain could mean bankruptcy for scores of companies in the sector, says Donald MacKay, CEO of XA Global Trade Advisors.

Nearly 10 000 importers could be hit by increases in duties in terms of a steel duty review by the International Trade Administration Commission (Itac), which oversees SA’s trade regime. Itac is considering raising duties to the maximum allowable “bound” rates under World Trade Organisation rules. This would impact 355 tariff codes worth R32 billion in imports annually.

Itac was goaded into action earlier this month when it announced the biggest tariff review in its 22-year history, covering 609 tariff codes with a total import value of R67 billion.

The review appears to have been prompted by the decision by ArcelorMittal SA (Amsa) to wind down its steel mills in Newcastle and Vereeniging due to a flood of cheap imports entering the country from China. 

Many steel companies are concerned that Itac proposes introducing import controls – meaning companies will have to apply for import permits – on 388 tariff codes worth R41 billion in annual imports. Just 67 importers will carry half of this risk, says MacKay. 

Should these proposed tariffs and controls be introduced, many importers may not be able to survive. Those most at risk of going bust are downstream producers of steel, says MacKay.

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Rebates and preferential price system considered 

Also being considered are further rebates on steel duties, which exempt importers from duties under certain conditions. Steel has about 80 temporary rebates, more than any other sector. These rebates reduced duties paid by importers by R520 million in 2024.

To the dismay of many, government appears to be looking at imposing a preferential price system (PPS) on coking coal and iron ore, which means forcing companies to sell locally at a discounted price before exporting. This would be similar to the PPS already in place for scrap steel. 

SA exported R104 billion of bituminous coal and R109 billion of iron ore in 2024.

“Imagine the impact of now forcing these mines, already under strain from our rail and ports, to also offer their minerals at a discount locally before being allowed to obtain an export permit,” says MacKay.

“Itac has understandably complained about the difficulties in doing this on scrap metal. Imagine now doing this on a scale 20 times – at least – bigger than scrap metal.”

The PPS for scrap steel requires dealers to first offer their scrap to local buyers at a 30% discount to international prices, in addition to covering transport costs to the buyer’s premises. This system is widely abused, with mini mills placing orders for scrap, which are then cancelled at the last minute to force an oversupply situation in SA. Complaints have been lodged about this practice with the Competition Commission.

The review of the steel duty regime may end up with serious unintended consequences, adds MacKay. “More rebates may be on the way, and this opens [the] door to abuse and circumvention.”

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Can mini mills pick up the slack?

The closure of mills by Amsa would be another milestone in SA’s ongoing deindustrialisation, a process that commenced in the 1980s. Mini-mill producers say they can pick up the slack left by Amsa’s mill closures, but this is disputed by many in the industry.

Discussions between Amsa and government are continuing in an effort to avert the mill closures, though an announcement last week by Amsa says no agreement has been reached and the wind down will continue.

“Having bought [steel] from mini-mills, I have found several cases where the most simple of issues like flange width and thickness is out of specification,” says one Moneyweb reader.

“The installed processes at mini mills do not lend themselves to producing higher grade steels especially where the homogeneity of their input material (scrap) cannot be guaranteed.”

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Other concerns

Illegal steel imports concern the South African Revenue Service and demonstrate how government interference in trade creates incentives to bypass regulations. 

There is also a danger that Itac will attempt to exceed the maximum tariff rates allowed under the World Trade Organisation rules and local legislation to protect local producers. This may be flanked with tariff rate quotas and a change from percentages to a fixed rate of duties.

Itac also promises tougher import surveillance to reduce customs fraud. “This is to be welcomed,” says MacKay.

There’s also a proposal to introduce compulsory standards on high-risk steel products.

Itac has promised to complete its investigation into steel tariffs in six months, but the average time taken in other cases is 27 months.

Some of its investigations, covering far fewer tariff codes, have been open for 50 months, making it unlikely that this one will be achieved on time.

“The scale of the trade-offs to be made in this investigation are staggering,” says MacKay. “My concern is not with the scope so much as all of this is happening in a single review. It’s like everything which was not done in the steel sector in a decade is now being done in a month.”

This article was republished from Moneyweb. Read the original here.