Measures Needed to Address Underestimation of the Steel Industry – Itac

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JIMMY MOYAHA: The steel industry has been a focal point for discussion for quite some time. We’ve examined its impact on our economy and job creation. Recently, the Minister of the Department of Trade, Industry and Competition, Parks Tau, indicated that the tariff structure in the steel sector must be reassessed and possibly reformed.

This responsibility falls to the International Trade and Administration Commission, known as Itac. We’ve previously discussed Itac’s role concerning import tariffs.

I am on the line with Itac Commissioner Ayabonga Cawe to delve into the current state of the steel industry and the implications moving forward. Commissioner, good evening.

Let’s begin with the recent announcement from the Department of Trade, Industry and Competition regarding the review of tariffs. This significant task has been assigned to your organization, marking a rare occurrence as such a review hasn’t been undertaken in about two decades.

While I may not have the precise numbers, we are looking at over 600 codes under review. Please explain the mandate that you have been given.

AYABONGA CAWE: Thank you, Jimmy, and good evening to you as well. It’s always great to connect, and good evening to your listeners. You are correct that we haven’t undertaken a review of the tariff structure across various chapters, specifically Chapters 72, 73, 82, and 83 pertaining to steel products, for decades.

As you noted earlier, this arises from a directive from the Ministry of Trade, Industry and Competition received shortly before last year’s general elections, which the current minister supports.

The steel crisis isn’t just a local issue; globally, there’s structural overcapacity. To put it simply, we have a greater capacity to produce steel than the global economy can absorb.

This situation leads major producing countries to seek every possible outlet to export their surplus.

Consequently, in recent decades, we have implemented numerous safeguard and anti-dumping measures as South Africa and other authorities strive to manage the issues stemming from this global overcapacity and its repercussions on our industry.

Based on the directive, we have spent several months engaging with the industry to clarify the current tariff structure, including our bound rates under the World Trade Organization.

From these discussions, we have developed proposals that may allow us to advise the Minister of Trade, Industry, and Competition on adjustments to the tariff structure.

More importantly, we are also exploring how to better monitor imports for trade compliance as well as for environmental and safety considerations.

Many low-income communities, for example, use galvanized or coated steel products for constructing informal housing and modular structures. We have noticed a surge in imports of these types of products.

Existing discrepancies in specifications and standards can pose health and safety risks. One proposal we are considering is to recommend to the minister that certain products—including steel tanks and tubing—be placed under import control, while also evaluating the need to raise or lower tariffs as necessary. We recognize that certain steel products are essential inputs for local re-rollers, who craft them into other downstream products used widely.

JIMMY MOYAHA: Commissioner, let’s discuss local industry developments. Despite government interventions, the steel industry has experienced a consistent decline in jobs since 2009. Industry representatives claim that governmental policies do not support their environment adequately.

Will you address this issue in your recommendations, potentially suggesting that relaxing certain policies might support local steel manufacturers who are struggling?

AYABONGA CAWE: Which specific policy are you referring to, Jimmy? It’s important to clarify that the array of policy areas affecting the steel sector is broad, and discussions often lack specificity regarding which policies are affecting the industry.

JIMMY MOYAHA: Exactly.

AYABONGA CAWE: It could encompass various aspects.

JIMMY MOYAHA: Sure, and from the Steel and Engineering Industries Federation of Southern Africa [Seifsa] perspective, they are well positioned to provide insights into their experiences. Conversations with Seifsa and others in the steel sector indicate a challenging environment.

If we consider that the South African government is emphasizing infrastructure as critical for development and economic growth—ministers have even suggested transforming South Africa into a major construction hub—it seems paradoxical that this effort is not fully materializing.

AYABONGA CAWE: I understand your perspective. Yes, indeed, you are correct that many issues affecting supply lie within the state’s purview. The state regulates charges for rail, port, electricity, water, and property rates.

However, on the demand side, which is likely what you are emphasizing, we have not observed a significant recovery in public-sector investment or private-sector fixed investment since the global financial crisis.

This means we’re not witnessing the level of construction activity that would normally engage steel in building and production processes.

If some of this stagnation arises from policy uncertainty or lack of coordination, that observation is valid.

To what extent can this review address these supply-side issues? While we cannot directly influence demand, we are soliciting public input on supply-side measures that could enhance the cost competitiveness of domestic steel producers.

This includes determining whether there are necessary measures to support raw material input prices for scrap, iron ore, coking coal, or other materials required along the production chain.

Furthermore, we must assess the impact of our bound rates under the WTO, which limit how much we can increase tariffs. This is a vital policy issue as we want to ensure any domestic demand we have does not divert toward imports when we have local capabilities.

How much does our current tariff framework restrict our capacity to provide effective protection to the industry? That’s a critical angle the review will explore.

Another aspect involves product diversity. Many mills have limited production capabilities, and numerous industry players have approached us for permission to import essential steel products that local producers do not manufacture.

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We currently have various measures in Schedules 3 and 4 of the rebate provisions of the Customs and Excise Act.

The question arises whether these measures are being exploited and whether they should be retained or adjusted to manage potential unintended outcomes effectively.

These considerations will play a crucial role in alleviating supply challenges while also addressing demand issues to some degree. Nevertheless, resolving major demand concerns, particularly concerning state-owned and municipal investments, may be beyond the scope of this review.

Instruments like designation, in line with Section 20 of the Procurement Act, may yield better results in fostering local investment.

JIMMY MOYAHA: Commissioner, as we conclude, do you believe that these measures should have been implemented sooner? Consider, for instance, the prolonged requests by ArcelorMittal [Amsa] for assistance regarding policy and market access.

The decline in ArcelorMittal’s stock, which fell from R265/share in 2008 peak levels to R1.30/share today, highlights significant industry struggles.

Should we wait for crises such as this—applicable not only to Amsa but the whole industry—before acting? Should more proactive steps be taken to avert such situations?

AYABONGA CAWE: Jimmy, I would advise caution against correlating the timeline of this review with the crises surrounding Amsa.

The situation at Amsa is indeed a facet of the overall steel crisis in South Africa. We face considerable overcapacity nationally.

When combining the capabilities of primary steel producers, it becomes evident that domestic demand does not align with existing production capacity.

The Amsa crisis is significant but should not be seen as the sole catalyst for government action.

Our mission must involve considering the steel sector within a broader national framework, and we hope this review will guide us in that direction, similar to other nations.

Countries like India are exemplary in this regard. They began laying out their steel production goals in 2008, forecasting substantial infrastructure investments by 2030, and aligning them with export strategies.

This is the path we should tread. While a crisis can incite urgency in addressing these issues, we must also maintain historical context when analyzing stock trends.

For instance, comparing today’s Amsa, which lacks integrated mining access to iron ore, to its past performance fails to consider the changes in demand dynamics since the 2010 World Cup era. We must analyze these complexities alongside global market conditions.

The current consumption of domestically produced steel relative to imports cannot be judged similar to the situation in the early 2000s, particularly after China joined the WTO.

Today’s overcapacity is largely fueled by surges in production from China and India, creating an imbalance that must be addressed. It’s paramount that we identify our unique challenges and learn to leverage crises productively.

This review into the steel tariffs follows longstanding calls for action prior to the Amsa crisis. Indeed, implementing certain import control measures for specific downstream products should have occurred right after 1994.

The last measures on import control for steel products date back to early 1993, indicating a history of regulatory action.

In retrospect, it appears we were perhaps overly optimistic regarding the outcomes of unfettered trade in products like steel. While the rules exist, not every nation adheres strictly to them, leading to episodic overcapacity scenarios. We currently find ourselves tasked with formulating a robust response to these challenges and to cultivate a thriving steel market rather than merely attributing our setbacks to one firm.

JIMMY MOYAHA: It seems we must focus on demand as well. There are significant infrastructure projects awaiting development, which could be an excellent outlet for our excess supply.

However, that is a discussion for another time. We will conclude on that thought. Thank you for sharing your insights and thoughts. This has been Itac Commissioner Ayabonga Cawe discussing the steel industry and the ongoing review of the steel tariff structure mandated by the Ministry of Trade, Industry and Competition.

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