Question NW1895 to the Minister of Trade and Industry

Reply:

No, the conditions of the 10% tariff increase on primary steel products produced by ArcelorMittal South Africa (AMSA) does not include conditions that the price of steel must not increase.

The conditions of the tariff adjustment are subject to a signed agreement between AMSA and government which includes a requirement for AMSA to abide by steel pricing principles and reciprocal commitments. These are the retention of jobs, maintaining industrial output and an independent settlement with the Competition Commission to invest R4.6 billion to raise competitiveness.

The agreement is based on an international basket price calculated using the domestic prices of steel in countries South Africa competes with in downstream steel intensive products. The basket is aimed at achieving a fair flat steel price that is priced appropriately to ensure that steel-dependent industries are competitive, while at the same time ensuring that the upstream steel mills remain sustainable. AMSA has complied with the basket price which changes as global prices increase or decrease in an environment where global market prices and input costs are volatile, but generally increasing. This process is monitored by the Department of Trade and Industry (thedti) and the International Trade and Administration Commission.(ITAC)

Excess steel capacity, unfair trade and increased steel imports are challenges, not only for the domestic economy, but globally. These problems are exacerbated by structural problems, weak economic recovery and depressed market demand. This has resulted in the increasing deployment of large-scale trade measures by a host of countries. In SA, the tariff increases are part of an integrated set of measures deployed by the SA government to respond to the challenges and support the steel industry as a whole.

In 2015 with the onset of the steel crisis, an interdepartmental task team was established to develop short to medium term measures to save the industry from the threat of closure, loss of capacity and job losses. The outcomes of the work to date are the following measures currently being implemented and monitored:

1. Increase in the general rate of customs duty on primary steel products to 10% and safeguard measures for a period of 3 years on hot rolled coil and plate products,
2. Tariff increases on a range of downstream products and the deployment of rebates where products are not manufactured or additional value added, before export,
3. As set out above an agreement on a set of principles for flat steel pricing in SA,
4. Local procurement by government to raise aggregate domestic demand by:
   • • ‘undeeming’ of primary steel in designated products (requiring the use of locally manufactured primary steel)
     • designation of downstream steel intensive construction steel products and components,
5. A settlement by the Competition Commission on a range of issues with AMSA,
6. Establishment of a R1.5bn Steel Development Fund to support key downstream steel sectors/sub sectors, housed at the Industrial Development Corporation (IDC)
7. Investment support through 12i tax incentives and incubation support for SME development.

Other measures are currently being considered and processed. These include the development of a short term negotiated electricity pricing framework for energy intensive users and a SARS/Customs reference price system for downstream products.

The inter-departmental steel task team is also engaged with developing medium to longer term interventions. Announcements on these will be made in due course.