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February Coverage Report
South African Builder
01 February 2016,p.7
City Press
7 February 2016, p.18
Financial Mail
11 February 2016,p.41
Engineering News
26 February 2016,p.42
Online
Financialmail.co.za – Financial mail
Arcerlormittel SA: Make or Break
11 February 2016
Article link: http://www.financialmail.co.za/moneyinvesting/2016/02/11/arcelormittal-sa-make-or-
break
ARCELORMITTAL SA, which has agreed to pay R1.5bn to the competition commission — the largest
fine ever for anticompetitive behaviour — will complete a study for the construction of a gas power
station in Saldanha before the end of this year.
The move to produce power independently of Eskom at the Saldanha Works is being driven by the
“extremely” high cost of electricity, which, coupled with low demand and prices for steel, has put the
future of the steel plant in the Western Cape into question.
Electricity accounts for 30% of the plant’s costs. Eskom is applying for a 16% tariff increase for this
coming year, and power prices have already more than doubled over the past five years.
Dean Subramanian, ArcelorMittal’s chief financial officer, says once a bankable feasibility study has
been completed and project finance for the programme secured, it could take about two years to
complete the gas power station. “It could be done in two years but it would be very tight.”
The proposed plant would more than service its peak usage of 220MW. It is hoped that the balance
of the power will be sold to other groups in the area, where the Saldanha special economic zone is
already home to oil and gas services businesses.
ArcelorMittal last week put the Saldanha Works plant on a review process. The 1.2Mt capacity plant
can roll steel to a thickness of 1.6mm, and can be used to target the export market in East and West
Africa, says outgoing CE Paul O’Flaherty.
It is a make or break year for ArcelorMittal. If it is to survive, a lot of things have to go right for the
company. It must conclude an empowerment deal, finalise the appointment of a new CE and work
hard to build and grow new markets for itself in Africa. Much of this it can do alone, but the critical
elements to its success are all in the hands of the state.
It is not just ArcelorMittal that is battling for survival. Other steel companies such as Cape Gate, Scaw
Metals and Evraz Highveld Steel & Vanadium are also under stress.
Evraz, the second-largest steel producer in the country, is in business rescue and its hopes of escaping
liquidation dimmed this past week when Hong Kong based International Resources decided to walk
away from the deal.
ArcelorMittal SA is waiting for the department of trade & industry to support its application for
safeguard duties against Chinese imports. The duties would buffer the thin rolled steel that Saldanha
supplies to the domestic market.
So far maximum import tariffs of 10% have been approved on just five of the 10 types of steel for
which ArcelorMittal has applied for protection, but only three have been implemented. The most
important protection for the firm is the safeguard duties. Five categories of steel have been identified
by the group as needing protection from dumped steel from China.
It is not just safeguard duties that ArcelorMittal is waiting for.
In coming to an agreement to pay the largest antitrust fine ever, the steelmaker has also been
negotiating “an integrated package of measures” for government support, Subramanian says. A
central component of this package is regulation of the prices ArcelorMittal will be allowed to charge
in good times as well as bad times. Its dominance and control of the local steel market has frustrated
government’s decades-old ambition to have a developmental price for steel that would support the
development of SA’s heavy industry.
The new “fair price for steel” mechanism will be benchmarked on the cost of steel that manufacturers
of large capital goods have to pay in their domestic markets. A basket of markets will be selected to
use as the reference point. “In effect we will become a regulated utility,” O’Flaherty says.
Financialmail.co.za:Financial Mail
FM Magazine Index February 11 2016
11 February 2016
Article Link: http://www.financialmail.co.za/features/2016/02/11/fm-magazine-index-february-
Mention on page 41
Engineeringnews.co.za – Engineering News
Merchants, consumers at odds over proposed new scrap export rules
12 February 2016
Article link: http://www.engineeringnews.co.za/article/big-scrap-looms-over-proposed-new-scrap-
export-rules-2016-02-12
South African scrap merchants and domestic scrap consumers are taking strongly opposing positions
regarding proposed amendments to the price preference system (PPS) policy guidelines, which will
govern the future exportation of ferrous and nonferrous scrap metal. The proposed changes were
published by the International Trade Administration Commission of South Africa (Itac) in the
Government Gazette of December 11 and the public comment period was extended until last week.
Print Send to Friend 0 0 The amendments seek to align the PPS with the Second-Hand Goods Act and
government’s black economic empowerment policy, while also tightening up permit application and
administration processes, right down to a stipulation of the times at which PPS-related transactions
can be concluded. In addition, Itac has included a clause specifying that all metal scrap be exported
through a single harbour, with Port Elizabeth having been designated for the purpose.
The Metal Recyclers Association (MRA), which has over 100 scrap-dealer members representing
70% of the market by volume, is objecting to the proposed changes, describing them as “punitive”. It
has also written to Economic Development Minister Ebrahim Patel requesting an urgent meeting to
canvass alternatives. MRA chairperson Quintin Starkey tells Engineering News that the PPS has been
progressively tightened since its introduction in 2013 and that the proposed changes will have
serious unintended consequences. They will result, he argues, in a further decline in scrap prices,
which will place additional pressure on its members, through continued job losses and business
closures. The proposed changes will also jeopardise the livelihoods of tens of thousands of informal
scrap-metal traders – the MRA estimates there to be 400 000 such traders, who support as many as
1.8-million dependants. He says they are also inappropriate in the context of a yearly ferrous scrap
surplus, which the MRA estimates at between 1-million and 1.5-million – the domestic industry
collects about 3.5-million tons a year, of which the consuming industry only trades in 1.5-million
tons. The “onerous” requirement of insisting on all scrap being exported through Port Elizabeth
would also add about R700/t to transport costs, which would be passed on to the generators of
scrap in the
form of lower prices. The Road Freight Association (RFA) also objects to the designation of Port
Elizabeth as the sole port of export, arguing that it could negatively affect the viability of hauliers.
Road freight operators, the RFA argues, are typically able to rely on a return leg from Durban when
transporting scrap from the interior of the country. However, there is now a serious risk of the
return trip from Port Elizabeth becoming a “dead leg”, which could result in some hauliers closing
down. However, Itac spokesperson Foster Mohale argues that a designated port has many benefits
and will contribute towards the objectives of improving the administration of the system. The
proposed tightening of the PPS system – introduced primarily to improve domestic scrap availability
and facilitate a 20% to 30% discount to export prices for local consumers – is broadly supported by
scrap consuming industries, frustrated by the fact that the PPS is currently being bypassed by the
scrap sector. In Support of Tightening Non-Ferrous Metal Industries Association of South Africa
chairperson Bob Stone says that the majority of its members are supportive of a further tightening
of the PPS guidelines, as there are currently too many loopholes. Government introduced the
discounts and a restriction that scrap could not be exported before first being offered to domestic
consumers in favour of introducing an export duty, or banning scrap exportation entirely; a measure
that has been introduced in a number of other countries to shore up domestic supply. But Stone
says he has yet to come across a member firm that has successfully negotiated the discounts initially
anticipated when the system was introduced. There was also ongoing concern about high levels of
metal theft, which was having serious economic and social impacts. Scaw Metals CEO Markus
Hannemann adds that the proposed amendments should also be viewed in the context of the overall
objectives of the PPS, which is to ensure the “steady supply of quality scrap material to local users at
a price that is reasonable in order to support local industry”. Hannemann argues that that objective
is currently not being met and that the Itac intervention is designed to try walk a middle road
between an outright ban and continuing to sustain an export channel that is aligned to the
beneficiation goal. Scaw, therefore, supports the proposed changes and also believes that the steel
and engineering sector will benefit from the new policy, by securing current jobs and levelling a
playing field currently made uneven by the large-scale export of quality scrap. Starkey acknowledges
that the PPS is not working as envisaged, but also questions whether it is the best instrument for
meeting government’s aims.
“Our appeal to government is to have a proper roundtable consultation with all industry
stakeholders on the proposed amendments and the PPS system in its entirety,” he says, stressing
that the MRA is keen to be part of a “constructive” solution. “We need a platform through which to
engage government and other industries to find a solution to the problem.” Steel and Engineering
Industries Federation of Southern Africa (Seifsa) chief economist Henk Langenhoven says further
dialogue is probably necessary, as the proposals outlined in the Gazette do appear onerous. He also
cautions that there are often negative outcomes even when new regulations are well intentioned.
He says Seifsa remains concerned about the availability and pricing of scrap, which is affecting the
competitiveness of the domestic industry. “This is an attempt to plug the holes and stop the
circumvention of the initial guidelines,” Langenhoven explains. “My worry, as an economist, is that
the new rules are so onerous that it might stop international trade completely.” Others are dubious
about whether further dialogue will yield a solution, particularly in the context of a material trust
deficit that has developed, largely as a result of what is perceived to be the scrap industry’s ongoing
circumvention of the PPS.
“Discussions on this issue have been ongoing since around 1998. The conclusion in most of those
meetings is that industry needs assistance – we are becoming uncompetitive, we are closing, we are
losing jobs,” Stone says. “So, we can go on talking for another 10 or 15 years, but by then the
industry, which is already only half of what it was, will be no longer . . . and we will become totally
deindustrialised.” Itac’s Mohale confirms that the reason for the proposed amendments is to
improve compliance and enforcement. “Improved, effective administration will support the
objectives of the PPS to provide the necessary input material which will ensure internationally
competitive beneficiation of scrap metals by the local consuming industry,” he says. Mohale says the
notice forms part of the consultation process and stresses that all comments will be “duly
considered”.
Sa Builder.co.za:SA Builder
Steel sector meltdown continues
17 February 2016
Article link: http://www.sabuilder.co.za/2016/02/17/steel-sector-meltdown-continues/
The South African steel industry closes ranks to consolidate and develop innovative solutions as the
steel crisis deepens
At a special workshop for its members held in Johannesburg in January, the Southern African
Institute of Steel Construction (SAISC) outlined its consolidated approach and progress in dealing
with the steel crisis. Working closely with the Department of Trade and Industry (DTI) in recent
months, the SAISC together with the DTI and other government and industry bodies, including SARS’
Customs and Excise division, aims to arrest the rampant deterioration of the crisis in the steel sector
caused primarily by so-called dumping of cheap steel imports from China on the South African
market – which has resulted in plummeting prices, dwindling demand, closure of some steel mills
and widespread retrenchments.
Background
In 2015 the crisis evolved into a full on meltdown as steel mills were forced to close and steel and
metal companies began retrenching workers. Some steel fabricators are now in their third round of
retrenchments.
In August 2015, ENCA.com reported that Scaw Metals Group chairman Ufikile Khumalo referred to
the crisis as “unprecedented.” “The industry is seeing a crisis, I have never seen such a tough period
in my history in the industry…media is talking about a job bloodbath, we are talking about a
company bloodbath, especially in smaller companies. These companies are highly indebted and are
battling to survive.”
In September 2015 ArcelorMittal SA announced the temporary closure of two of its steel mills, and is
reviewing the future of its largest steel mill.
January 2016
Addressing some 150 SAISC members from around the country, Paolo Trinchero, CEO of the
Southern African Institute of Steel Construction (SAISC), advised that significant progress had been
made through ongoing discussions with the DTI to alleviate the crisis. “Working closely with the DTI,
SAISC is taking a holistic approach on tariffs – which is a complex task indeed requiring a fine
balance. And beware as Chinese exporters continue to market heavily,” warned Trinchero.
An important part of its collaboration with the DTI, SAISC is playing a key role in enforcement by
training Customs officials to seek out and recognise inferior steel product imports which are subject
to revised tariffs.
A statement released by the DTI in February reads:
“Government is working closely with all the stakeholders in the steel sector to secure agreement on
a comprehensive package of measures to support South Africa’s primary steel production
capabilities.
Following due process involving the International Trade Administration Council (ITAC), the Minister
of Trade and Industry, Dr Rob Davies, has assented to tariff increases for three steel products.
Investigations into another eight product lines have been finalised and await government approval.
It is of course extremely important that tariff protection measures for primary steel producers do
not result in higher steel prices being ‘passed on’ to downstream, steel intensive manufacturing
sectors. These sectors are labour intensive and any measures, which might erode the
competitiveness of secondary steel intensive manufacturers, must be avoided. It is for this reason
that government is very carefully weighing up the basket of measures under consideration and is
consulting widely with all stakeholders, the downstream users included.
The Ministers of Trade and Industry, Dr Rob Davies and of Economic Development, Mr Ebrahim Patel
and senior officials of both departments, have held extensive talks both with executives of
ArcelorMittal South Africa (AMSA) as well as with senior executives of the company at the recent
World Economic Forum in Davos.
In addition to a meeting held in October 2015 with all primary steel producers, downstream
manufacturers, industry associations and labour, a further meeting will be convened by government
in the near future to finalise the package of measures proposed by government. These measures are
designed to secure the primary steel producers, safeguard downstream users and protect
employment across the entire steel value chain.
Government is confident that agreement will be reached in this regard.
Once final agreement is reached an announcement setting out the package of measures to be
adopted, in addition to those already implemented, will be made.”
Certainty in construction, mining and energy is essential
“Although there is too much supply and too little demand, there is still much that we can do in
parallel with Government’s interventions,” continued Trinchero. “Stimulation of the local market is
key.”
Referring to the National Development Programme (NDP), Trinchero emphasised that certainty in
the construction, mining and energy sectors is absolutely essential. “Release smaller bites of the
NDP,” he implored Government, “and localise supply. The entire supply chain from design,
tomanufacturing, supply and installation must be localised to support and stimulate not only our
ailing steel industry, but the South African economy as a whole.”
Most importantly, Trinchero pointed out, is that municipalities in particular are now buying locally.
“Exports too are critical, and exchange rates are favourable,” he said, noting that some 200 000 tons
of steel product was exported in 2014, and a somewhat lower yet still very significant figure in 2015.
“As an industry we need to focus on accelerating our export drive with a view to doubling this
figure!”
SAISC has also established “Team SA,” partnering with financial institutions to market South Africa
heavily throughout Africa.
“A number of large steel heavy construction projects are in the offing for 2016,” said Trinchero in
closing. “Both here at home as well as in the SADC, the DRC and Ethiopia. Innovation is the answer:
as an industry we need to sharpen pencils, work smart, work hard, and be competitive”
Engineeringnews.com:Engineering News
26 February 2016
Steel major punts preferential pricing for scrap metal
Article link: http://www.engineeringnews.co.za/article/steel-major-punts-preferential-pricing-for-
scrap-metal-2016-02-26
Steel manufacturing major Scaw Metals is supporting the proposed amendments to the price
preference system (PPS) policy guidelines for local scrap metal. The PPS will govern future exports of
ferrous and nonferrous scrap metal from South Africa through one harbour – Port Elizabeth. Print
Send to Friend 0 0 The amendments aim to align the PPS with the Second-Hand Goods Act and
government’s black-economic-empowerment policy, while also tightening up permit application and
administration processes.
Scaw Metals CEO Markus Hannemann says the company fully supports the PPS framework because
its intent is to ensure the steady supply of high-quality scrap-metal material to local users; it also
proposes reasonable prices that will enhance support for the local steel industry. More Insight Scrap
metal issue requires inclusive industry debate Big scrap looms over proposed new scrap export rules
He adds that the local steel sector will benefit from the amended PPS policy because it will result in
securing jobs, based on increasing South Africa’s competitiveness in handling local volumes of scrap
metal and “levelling the playing field” in terms of international scrap metal handling. “With
competitive scrap prices, the industry will undoubtedly grow, thus creating additional jobs that are
sustainable, and boosting the knock-on effect for the supporting industries, including refractory
companies, sand and chemicals companies, machine shops, spares departments and consumables,”
Hannemann elaborates. Scaw Metals is serious about value addition, as opposed to the large-scale
export of raw material to the detriment of industry, he states. Scrap is a precious resource, says
Hannemann, adding that, by limiting or halting exports, the domestic volumes of scrap metal will
increase and, subsequently, the price of local scrap metal volumes will drop. He says there is no risk
in losing international trade because the countries to which South Africa exports scrap metals ban
exports of their respective scrap metals outright. He mentions that this “recipe” will assist the steel
manufacturing industry in regaining its footing. Seeking Stabilisation Scaw Metals, like many other
steel manufacturers in South Africa, recently succumbed to straining profit margins and overcapacity
issues, implementing a restructuring programme that saw the issuing and enforcing of a notice in
terms of Section 189A of the Labour Relations Act.
The company stated in August last year that the unfortunate decision to file for a Section 189A was
necessitated by local and global conditions in the steel industry. Hannemann notes that Scaw Metals
is currently in a post-Section 189 stabilisation phase: “We are focused on ensuring the high morale
of the remaining workforce, and alignment of the business’ objectives remains the priority.” Beyond
Section 189, he states that all Scaw Metals’ businesses are working towards improved performance.
“We recognise the need to adapt to a dynamic, changing and competitive landscape,” says
Hannemann, adding that the company can now explore new business prospects beyond its
traditional boundaries. Imports and Exports Scaw Metals’ exports are increasing year-on-year,
compensating for weak domestic demand, Hannemann says, adding that the company’s largest
overseas clients include North America, Europe, Australia and numerous African countries. However,
the global economic slowdown, as a result of the China market crash, has affected Scaw Metals’
largest client base – mining. The market is further being crippled by China’s large-scale dumping of
steel, which is reducing steel value and impacting on other sectors served by Scaw Metals. Therefore
, Hannemann suggests that incentives to export value-added products should be considered by the
South African government to mitigate further industry harm. “We encourage the use of 100% locally
manufactured steel products. Local value addition is key to developing South Africa’s economy. “The
current local designation policy is inadequate to sustain the industry, and further designation
opportunities exist and need to be implemented urgently,” he concludes.