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Steel designations, Highveld supply to shore up AMSA demand amid weak market

AMSA CEO Wim de Klerk

AMSA CEO Wim de Klerk

Photo by Duane Daws

29th July 2016

By: Terence Creamer

Creamer Media Editor

  

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Steel producer ArcelorMittal South Africa (AMSA) expects a proposed deal to reopen the heavy-section mill at Evraz Highveld Steel & Vanadium (Highveld), together with recent moves by government to stipulate the use of local steel when calculating local content on certain infrastructure components, to help shore up domestic demand in an otherwise weak steel market.

New CEO Wim de Klerk confirms that the JSE-listed group is working with the Industrial Development Corporation (IDC) and Highveld’s business rescue practitioners (BRPs) on an arrangement to supply blooms and slabs for processing at the Mpumalanga mill, which was shut after the failure in January to sell Highveld as a going concern.

Since then, the BRPs have been seeking to sell Highveld units, including the heavy-section mill, to potential operators, while disposing of other aspects in an effort to secure between 10c and 15c in every rand owed to creditors.

De Klerk refuses to be drawn on the details, but indicates that the initial focus is on a one-year supply agreement. Thereafter, however, there is a possibility that IDC and AMSA could acquire the mill, which, given AMSA’s market dominance, would require competition authority approval.

“We are in the final delicate stages of all those negotiations,” De Klerk says, stressing that the outcomes will be positive for jobs and domestic supply capacity.

De Klerk says it is premature to disclose volumes, but that any agreement for the supply of blooms and slabs will be positive for revenue and sales.

Likewise, the instruction note from the National Treasury “undeeming” imported steel as local when calculating prescribing minimum local content thresholds on a number of products is also expected to offer support. Hitherto, imported steel has been “deemed” local. The products covered include solar water heater components, rail rolling stock, electric cables, conveyance pipes, steel power pylons, photovoltaic systems and components and working vessels and De Klerk says further work is under way to extend the designation to the steel used in public-sector construction projects.

AMSA calculates that the recent designations will add 108 000 t/y to demand and, together with interventions to protect the primary steel sector, will help consolidate its market share, in the context of ongoing oversupply and import competition.

The group estimates that apparent steel consumption was around 2.5-million tons during the interim period and that demand will remain subdued in the second half, when it will focus on improving its market share.

During the six months to June 30, AMSA increased its share of the flat-steel market to 72% from 59% and in long steel to 64% from 56%. Imports fell 21% during the period.

PROTECTION & PRICING

The group is nevertheless pressing ahead in its bid to secure safeguard duties across five steel categories, over and above the 10% tariff protection already instituted over the past few months across ten categories.

The International Trade Administration Commission of South Africa (Itac) has already concluded that the domestic steel industry is “suffering serious injury” as a result of a surge in hot-rolled coil (HRC) imports. However, it has decided not to impose provisional measures until it has received comments on whether further protection is in the public interest. Itac is expected to initiate similar investigations for cold-rolled coil, colour, galvanised and rebar and wire rod.

AMSA CFO Dean Subramanian insists safeguard protection remains justifiable, despite the recent decline in imports.

He acknowledges that flat steel imports of 383 000 t for the interim period are below the 472 000 t recorded in the first half of 2015. But he insists they remain well above previous levels, with imports of 272 000 t recorded during the same period in 2011.

“You cannot use last year as a base, because imports were abnormally high,” Subramanian argues, stressing that imports remain well above the five-year average.

He stresses, too, that safeguards will not translate into immediate price increases, particularly as it is close to receiving approval for its proposed “fair price basket”, which will determine the domestic price.

AMSA’s basket comprises domestic selling prices in the European Union (50%), Asia (30%) and North America (20%) and has been heavily contested by downstream consumers and merchants, which have been participating in recent consultations led by an Itac steel committee.

Several consumers suggest that too many low-priced jurisdictions have been excluded from the mechanism, which will result in flat-steel prices being heavily skewed in AMSA’s favour.

However, the company argues that, should countries such as China be included, it would defeat the objective of trying to get to a more sustainable industry.

It is understood that the consultations on the basket have been completed and that a determination on the mechanism and the composition of the basket now rests with Economic Development Minister Ebrahim Patel and Trade and Industry Minister Dr Rob Davies.

Edited by Creamer Media Reporter

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