Davies/industry collaborate to help 'bleeding' steel industry

Government and the
private sector are working
together to find solutions
for the “bleeding” steel
sector – particularly for the
downstream manufacturers
who are being hit hard by
price increases from upstream
producers.
Henk Langenhoven, chief
economist of the Steel and
Engineering Industries
Federation of Southern Africa
(Seifsa), said last week that
the sector was spiralling
into a deeper crisis than
previously thought, pointing
to the Statistics South Africa
(StatsSA) figures showing a
sector decline in production of
nearly 7% in the first quarter
of 2016 and a decline of more
than 5% over a 12-month
period.
Langenhoven commented
that although production
during the first quarter of
2016 was slightly higher
than during the last quarter
of 2015, this was attributable
to inventory replenishment
during the last six months
and pre-emptive domestic
orders in anticipation of
price increases.
Recent announcements of
tariff protection for several
basic ferrous products, coupled
with the weakening of the
exchange rate, had sparked
a frenzy of orders from
downstream manufacturers to
replenish their stock levels in
anticipation of imminent price
increases, he pointed out.
Langenhoven cautioned
that these short-term
improvements were not
expected to continue, pointing
to the Bureau for Economic
Research Manufacturing
Survey (MS) showing several
negative future trends for the
sector.
“Expected business
conditions for the metals
and engineering sector over
the next 12 months have
deteriorated substantially,”
said Langenhoven.
The steel industry in
particular has been hard
hit. Several delegates raised
the issue of no less than four
steel price increases over the
past year with the Minister
of Trade and Industry, Dr
Rob Davies, last week at
a networking breakfast
held in Johannesburg by
the American Chamber of
Commerce (AmCham).
In response, Davies noted
that there were “undeniable
issues” around the glut of steel
that had caused cheap steel
dumping by China around the
globe but refuted claims that
there had been “no support
from government for the
downstream manufacturers”.
He said that his department
had been engaging with
industry to find a workable
solution.
“We are trying to strike a
balance between protecting
the upstream producers from
the cheap imports and finding
some easing of price pressures
on those that buy from them,”
said Davies.
This was confirmed by
the CEO of Seifsa, Kaizer
Nyatsumba, who told FTW
that it was a “fine balance”
because it would seriously
harm the South African
economy if it ended up losing
its steel production skills and
capabilities.
He explained that Chinese
production was governmentowned
and thus governmentsubsidised
which was why
China could produce steel
more cheaply. “Unfortunately,
if we did not impose the
tariff protection measures,
this would force our local
producers to close up shop and
we’d be facing huge job losses
and, worse, a loss of valuable
skills,” said Nyatsumba.
He admitted that “perhaps
more could be done” to
support and assist the
downstream producers –
also represented by Seifsa
– commenting that there had
to be a focus on the bigger
picture of preserving the
industry as a whole.
“Currently the downstream
producers are facing major
costs – due to high import
tariffs imposed
to protect
the upstream
manufacturers – but
what happens when the steel
production glut is over and all
steel has to be imported at a
premium?” was Nyatsumba’s
rhetorical response.
He added that South
Africa had already lost export
markets due to the cheaper
Chinese steel available on the
global market.
“However, we did strike
deals with the major
manufacturers to ensure
that if we gave them import
protection, they would
minimise the job losses.
And we will continue to
look at ways in which we
can assist the downstream
players during this crisis,”
said Nyatsumba.