Interventions in SA’s steel and engineering industry need to be “radical and ambitious as deemed necessary“.
This was unanimously agreed between the Department of Trade Industry and Competition (DTIC) and the steel and engineering value chain at a recent inaugural sectoral engagement.
According to the Steel and Engineering Industries Federation of South Africa (SEIFSA), the matter of urgency was also stressed as ‘mission critical’ otherwise the problem will only get harder and more expensive to fix, or potentially, not fixable at all.
The de-industrialisation trajectory observed in the sector can be contributed 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,” says the national federation.
“The problem at hand is a result of a toxic combination of the absence of a holistic, metals/steel and engineering sector policy that balances the needs of up and downstream; a lack of demand from both the state and private sector; 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 and a structured arrangement which favours offshore rather than local capability.”
“The most immediate challenge that the sector faces is how to manage pedestrian demand or consumption in an environment of over-capacity.”
SEIFSA says that whilst it was agreed that any vision and outcomes for the future of the sector must be co-created by the industry and the Ministry, government must take the lead for the steel sector to survive.
The DTIC have asked the industry to make submissions on defining the problem and growth areas; what interventions should be actioned in the immediate to short-term, as well as to define long-term growth targets and the potential measures of success.
The key question industry will be reflecting on – and proposing solutions for – is how the industry can improve the cost structures across the value chain to position SA’s primary steel making in the lowest quartile of the global steel cost curve, to increase downstream value addition to claw-back on the local market share and to increase value-added exports, says SEIFSA. “In arriving at answering this question, some critical considerations have to be taken on board.”
“These include adopting a strategic approach and balance to investment between blast furnace and mini mill capacity, levelling the playing field with respect to incentives i.e., scrap metal, iron ore etc., incentives and support foundries; the role of international trade instruments and greater protection for the value chain; the critical role of designation for state procurement; the alignment between policy instruments for strategic procurement, financing, and public-private partnerships and provisions in competition law that allows companies to collaborate meaningfully in order to create structures where projects can be supplied by the entire value chain, from primary products to finished manufactured products, all working together.”
“Industry is in the process of drafting further inputs for consideration in framing the immediate, medium and long-term interventions to directly address the challenges raised in the problem areas.”
In the immediate term, SEIFSA proposes that there are interventions that the government, and in turn the DTIC, can act on in contributing to addressing the decline faced by the sector such as acting on imports through trade instruments across the value chain; procurement practices, with an emphasis on and preference for locals where competitive capacity exists while acting on transgressing state organs; the scrap versus commodities policy which requires urgent attention and resolution; an intervention in logistics costs; and Operation Vulindlela, a joint initiative between the Presidency and National Treasury to accelerate the implementation of structural reforms and to support economic recovery, to coordinate and consolidate national demand of steel related projects.
“It is time for government to take the lead, working collaboratively with the sector in crafting a balanced, forward looking steel strategy that protects all players in the sector, ensuring a competitive industry that aligns with global trends,” says Lucio Trentini, CEO of SEIFSA.
“The South African steel industry is eager to collaborate with government to ensure that policy decisions are made in the best interests of the industry and the nation. 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.”
