Modern Mining January 2024

EXPERT VIEW

Bold, decisive and urgent reform needed to save the steel sector By Tafadzwa Chibanguza, COO of SEIFSA Much has been reported in assessing the likely impact of the potential closure of Arce lorMittal SA’s operations in Newcastle and Vereeniging, as well as ArcelorMittal Rail and Structural on the South African economy. Several alarming outcomes are emerging, all of which point to the fact that the country cannot allow this scenario to play out. Bold and aggressive reform, even at the local level, is urgently required.

W hat is not disputed is the extent to which the steel sector is integrated into the South African economy. The point, although obvious, only hits home when the coun try is squarely faced with the prospect of losing this critical asset. The long steel products that are at risk feed into the construction, heavy engineer ing, railways, automotive, fasteners manufacturing and mining sectors, and include the structural steel sections required for electricity transmission. The reach is vast, the consequences dire, and the cost immeasurable. Downstream businesses that rely predominately on supply from AMSA would also be irrevocably affected by the closure. Some of the most alarming initial estimates relate to employment losses to the wider economy. Estimates for the first order and immediate impact are around 20 000 to 25 000 jobs, while the longer term impact of second round effects is likely to be multiples more than this. The automotive sector has been reporting the adverse local content implica tions of this development, which amount to another second order proxy for local economic activity and jobs. Logistics costs, including longer lead times, and exchange rate provisioning, are likely to add anything between 20% to 30% to the cost base and domestic logistics challenges will only serve to compound this, rendering domestic manufacturing uncompetitive

Tafadzwa Chibanguza, COO of SEIFSA.

and infusing higher costs into the economy. The extensive reach of the steel sector across the economy and the number of affected products will induce inflationary pressures, which will open up interest rate considerations throughout the entire economy. Moreover, once this domestic capacity is lost to import channels, which will invariably happen, a considerable segment of the country’s industrial sector will be lost permanently. The reality is that this localised development will have countrywide, immediate and long-term impli cations. What is urgently needed are bold reforms at the local level to prevent these scenarios from playing out. All options, including Negotiated Price Agreements (NPAs) for electricity, special dispensa tion, dedicated rail capacity, a levelling of the playing field with regard to uplifting the scrap metal ban and, in the long-term, exploring options for preferential pricing on iron-ore, amongst others, should be tabled and critically explored in a rational and collaborative fashion. Not to do so, would at best be irresponsible and at worse amount to economic suicide. Organised business and industry bodies includ ing the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) are willing to stay the course and participate in urgent efforts to avert an economic disaster of unimaginable proportions. The undeniable fact is that many of the levers to ensure this scenario does not play out are in the hands of the government. We call on government to stand and make these bold and aggressive reforms at both local and national levels. South Africa’s steel industry must be saved.  Long steel products feed into the construction, heavy engineering, railways, automotive, manufacturing and mining sectors.

Downstream businesses are predominately reliant on supply from AMSA.

60  MODERN MINING  January 2024