Following an inaugural sectoral engagement between Minister Tau representing the Department of Trade Industry and Competition (DTIC) and the steel and engineering value chain on 20 November 2024, it was unanimously agreement that in order to arrest the rapid decline in the sector performance, interventions need to be as radical and ambitious as deemed necessary under the circumstances. The matter of urgency was also stressed as mission critical, otherwise, the problem would only get harder and more expensive to fix, or potentially, not fixable at all.
The de-industrialisation trajectory that has been observed in the sector can be attributed 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. The problem at hand is the result of a toxic combination of the following factors;
- the absence of an all-encompassing, holistic metals/ steel and engineering sector policy that balances the needs of up and downstream.
- lack of demand from both the state and the 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.
- a structured arrangement which favours offshore rather than local capability.
- the most immediate challenge facing the sector (and the policymaker) now is how to manage pedestrian demand /consumption in an environment of over-capacity.
Whilst it was agreed that any vision and outcomes for the future of the sector must be co-created by industry and the Ministry, in the final analysis for the steel sector to survive, the government must take the lead.
The DTIC has requested the industry to make submissions on defining the problem and growth areas; what interventions should be actioned in the immediate to short-term to bring stability to the industry; as well as defining long-term growth targets for the industry and what would be the measures of success.
The key question the industry will be reflecting on and proposing solutions to is how the industry can 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.
- levelling of 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.
- the critical role of designation for state procurement.
- the alignment between policy instruments for strategic procurement, financing and public-private partnerships.
- the provisions in competition law that allow 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.
The 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.
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;
- act on imports through trade instruments – particularly where there a pressure points building (which is across the value chain).
- procurement practices, with an emphasis and preference for local where competitive capacity exists and acts on transgressing state organs.
- scrap vs. commodities policy (iron ore, chrome, manganese, coke) requires urgent attention and resolution.
- intervention in logistics costs
- Operation Vulindlela to coordinate and consolidate national demand for steel-related projects.
It is time for the government to take the lead and work collaboratively with the sector and craft a balanced, forward-looking steel strategy that protects all players in the sector, ensuring a competitive industry that aligns with global trends.
The South African steel industry is eager to collaborate with the 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.
Lucio Trentini is the Chief Executive Officer of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA).
For further information please visit: www.seifsa.co.za
