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Why is the government protecting foreign-owned ArcelorMittal SA?
The government is imposing stiff duties on imported, hot-rolled steel to the detriment of 10,000 local downstream steel manufacturers, writes Gerhard Papenfus
20 MAY 2017 - 10:41 GERHARD PAPENFUS
ArcelorMittal's logo is seen on an old train in Zenica, Bosnia and Herzegovina. File photo: REUTERS
ArcelorMittal's logo is seen on an old train in Zenica, Bosnia and Herzegovina. File photo: REUTERS
In a surprise move, the government has notified the World Trade Organisation that it intends to introduce a 12% safeguard duty on top of the existing 10% customs duty on imported, hot-rolled steel.
This decision is in direct conflict with the findings of the International Trade Administration Commission (Itac), a statutory body specifically tasked to investigate and advise the government on the impact of import duties on industries.
Itac recently published an "essential facts" letter in which it found the introduction of a safeguard duty was not in the public interest.
The question is why the government would decide to protect ArcelorMittal SA, a primarily foreign-owned entity, to the detriment of 10,000 South African downstream steel manufacturers and hundreds of thousands of employees. Several sub-questions need asking.
First, what was discussed during the meeting between the owner of Arcelor and the president, a meeting that caused a total turnaround in the government’s attitude towards a monopolistic Arcelor?
Second, what is the effect of Arcelor’s recent black-empowerment deal on current developments? How do the envisaged safeguard duties fit into the scheme of making Arcelor profitable, even with the burden of its new equity partners? And do the downstream entities have to pay for it?
During prosperous times when steel prices were high, and a lucrative import parity pricing arrangement was in place, instead of investing in a modern mill capable of producing high-quality steel at much cheaper prices, the owners of Arcelor took billions out of the country.
The effect of this is that Arcelor’s antiquated plant produces hot-rolled base steel at $550 a tonne while the world is trading at $460 a tonne. When the price of steel hit rock-bottom at $250 a tonne two years ago, many mills were in trouble globally. Currently, however, at $460 a tonne, modern mills have returned to profitability.
Old-technology mills also use 60% more electricity than modern ones.
These are only some of the factors that make it impossible for Arcelor to be profitable in a modern, global steel environment. However, instead of making itself more profitable, it is given government protection.
This arrangement ensures Arcelor does not need to adapt to what is globally dictated and what the steel downstream sector needs; this arrangement will dictate to the downstream sector how to adapt to the needs of a monopolistic Arcelor.