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AMSA insists further protection still required despite recent price increases

Source: Creamer Media's Engineering News Date: 10 May 2016

Safeguard duties, in addition to the 10% protection already introduced on a range of steel products entering South Africa, “remain critical in the short term to ensure the future sustainability of primary steel production”, ArcelorMittal South Africa (AMSA) said on Friday.

Releasing an operational update for the quarter ended March 31, the JSE-listed company reported that safeguard duty applications submitted to the International Trade Administration Commission of South Africa (Itac) had been reviewed by the commission and that queries raised had been addressed through a resubmission.

“The investigation in respect of safeguard duties relating to hot-rolled coil (HRC) has been initiated. Due to the combination of certain products one further application remains outstanding and will be finalised shortly,” the company said in a statement to shareholders.

Itac had recently recommended the imposition of a 10% duty on HRC and other bars and rods, which would be implemented once the relevant government processes had been completed.

Protection was granted on galvanised and colour-coated steel in December, and in February, Itac Gazetted notice of 10% protection on bar and wire rod, as well as plate, cold-rolled coil, sections, and semi-finished products such as slabs, blooms and billets. In other words, Itac had either implemented, or recommended the implementation, of 10% duties across ten separate steel categories.

However, AMSA argued that further safeguard duties would still be required to buffer it and other local producers from unfair imports arising primarily as a result of overcapacity in China, which had led to global oversupply. “Steel industries around the world continue to struggle and the South African steel industry is not immune to the international trend.”

It added that, during January and February, 164 000 t of steel was still imported into the country, of which 79 000 t, or 48%, was HRC. “Despite the completion of the 10% duties . . . it should be pointed out that the implementation of safeguards remains critical to address the issue of imports and ensure the sustainability of the industry and the company.”

Itac had indicated previously that it planned to complete its investigations into AMSA’s safeguard applications by mid-year.

However, both Trade and Industry Minister Dr Rob Davies and Economic Development Minister Ebrahim Patel had stressed that protection for the primary steel sector should not come at the expense of downstream steel consumers. Patel stated recently that protection had been introduced with caveats and that Itac would track prices and review tariffs yearly.

Government had also indicated that its support was predicated on fair domestic pricing of steel, as well as a condition that AMSA did not close plants, cut jobs, or pull back from planned investments of R4.6-billion to improve plant competitiveness.

“Significant progress has been made with the Department of Trade and Industry and the Economic Development Department regarding a pricing mechanism for local flat steel going forward but the process has not been finalised. It is anticipated that it would be finalised shortly,” AMSA said.

In addition, the group was pursuing a black economic empowerment deal, with Likamva Resources having been identified as the group’s preferred partner.

AMSA was pressing ahead with its safeguard applications despite recent price increases, which it attributed to rising international prices and higher input costs. It insisted, too, that the increases were not a response in increased levels of protection.

“The base price of HRC internationally has increased by $86/t from December 2015 to March 2016. At the same time the main elements of the raw material basket, namely coal, iron-ore and scrap, have also moved up $6/t, $16/t and $26/t respectively.”

AMSA said that, following the recent steel price increases, it anticipated that overall liquidity would “normalise at acceptable levels”. It added, however, that a return to profitability was still premised on an expectation of greater protection, as well as the designation of locally produced steel for use in government infrastructure projects.

“The company has been informed that the proposal for the designation of local primary steel for state procurement and use in government infrastructure projects has been submitted to National Treasury for consideration.”

Safeguard duties, in addition to the 10% protection already introduced on a range of steel products entering South Africa, “remain critical in the short term to ensure the future sustainability of primary steel production”, ArcelorMittal South Africa (AMSA) said on Friday.

Releasing an operational update for the quarter ended March 31, the JSE-listed company reported that safeguard duty applications submitted to the International Trade Administration Commission of South Africa (Itac) had been reviewed by the commission and that queries raised had been addressed through a resubmission.

“The investigation in respect of safeguard duties relating to hot-rolled coil (HRC) has been initiated. Due to the combination of certain products one further application remains outstanding and will be finalised shortly,” the company said in a statement to shareholders.

Itac had recently recommended the imposition of a 10% duty on HRC and other bars and rods, which would be implemented once the relevant government processes had been completed.

Protection was granted on galvanised and colour-coated steel in December, and in February, Itac Gazetted notice of 10% protection on bar and wire rod, as well as plate, cold-rolled coil, sections, and semi-finished products such as slabs, blooms and billets. In other words, Itac had either implemented, or recommended the implementation, of 10% duties across ten separate steel categories.

However, AMSA argued that further safeguard duties would still be required to buffer it and other local producers from unfair imports arising primarily as a result of overcapacity in China, which had led to global oversupply. “Steel industries around the world continue to struggle and the South African steel industry is not immune to the international trend.”

It added that, during January and February, 164 000 t of steel was still imported into the country, of which 79 000 t, or 48%, was HRC. “Despite the completion of the 10% duties . . . it should be pointed out that the implementation of safeguards remains critical to address the issue of imports and ensure the sustainability of the industry and the company.”

Itac had indicated previously that it planned to complete its investigations into AMSA’s safeguard applications by mid-year.

However, both Trade and Industry Minister Dr Rob Davies and Economic Development Minister Ebrahim Patel had stressed that protection for the primary steel sector should not come at the expense of downstream steel consumers. Patel stated recently that protection had been introduced with caveats and that Itac would track prices and review tariffs yearly.

Government had also indicated that its support was predicated on fair domestic pricing of steel, as well as a condition that AMSA did not close plants, cut jobs, or pull back from planned investments of R4.6-billion to improve plant competitiveness.

“Significant progress has been made with the Department of Trade and Industry and the Economic Development Department regarding a pricing mechanism for local flat steel going forward but the process has not been finalised. It is anticipated that it would be finalised shortly,” AMSA said.

In addition, the group was pursuing a black economic empowerment deal, with Likamva Resources having been identified as the group’s preferred partner.

AMSA was pressing ahead with its safeguard applications despite recent price increases, which it attributed to rising international prices and higher input costs. It insisted, too, that the increases were not a response in increased levels of protection.

“The base price of HRC internationally has increased by $86/t from December 2015 to March 2016. At the same time the main elements of the raw material basket, namely coal, iron-ore and scrap, have also moved up $6/t, $16/t and $26/t respectively.”

AMSA said that, following the recent steel price increases, it anticipated that overall liquidity would “normalise at acceptable levels”. It added, however, that a return to profitability was still premised on an expectation of greater protection, as well as the designation of locally produced steel for use in government infrastructure projects.

“The company has been informed that the proposal for the designation of local primary steel for state procurement and use in government infrastructure projects has been submitted to National Treasury for consideration.”

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