As the voice of employers in the Metals and Engineering (M&E) sector, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) has been tirelessly engaging with the South African Government and other relevant parties to find solutions to the challenges the Metal and Engineering is experiencing as a result of not only the COVID 19 pandemic and the national lockdowns to curb its spread, but also the now seemingly perennial challenges faced by many businesses, such as the high cost and unreliability of South Africa’s power supply, reduced demand for our products and rising imports.
SEIFSA was alerted to the critical shortage of steel in the country being experienced by its member companies and decided to engage with a key primary steel supplier and the South Africa Government through the Department of Trade, Industry and Competition on how to resolve this challenge.
In order to ensure a constructive engagement, SEIFSA conducted a survey from its member companies, to understand the impact the steel shortage has had on operations, with the survey’s closing date being Monday, 22 February 2021.
The following questions were posed to the member companies:
- Has your business experienced any shortages of steel?
- If yes, which steel products have you experienced a shortage of?
- When did you start experiencing this shortage?
- Did the supplier communicate the reasons behind the shortage of steel products? • What has been the impact of the steel shortage on your business?
- What has been your approach in addressing the shortage for your business? • If you had the opportunity to engage with your supplier, what would be your proposal to find a solution to this shortage?
- If you had the opportunity to engage with the Department of Trade, Industry and Competition, what would be your policy suggestion around the steel shortage? • Do you have any other comments that need attention with regards to the steel industry?
2. SURVEY RESULTS
2.1 Has your business experienced any shortages of steel?
According to survey results, 98.5% of the respondents indicated that they had experienced shortage of steel, with only 1.5% indicating no, as demonstrated in the figure 1: Figure 1: Companies experiencing shortage of steel
Source: SEIFSA Survey Feb 2021
2.2 Steel products where shortages are being experienced
A number of steel products varying from flats and long steel, were listed by the various companies, with the dominant steel products in shortage being galvanized products, hot rolled steel, cold rolled steel and sheets, among others.
2.3 Period when shortages started being experienced
According to the percentage responses received, the bulk of the steel shortages experienced by many companies was during the fourth quarter of 2020, with 56% of the companies having felt the high impact as depicted in figure 2. It is to be noted that this increase was as a result of relaxed lockdown measures, with demand exceeding ArcelorMittal South Africa’s supply, as the primary producer had not resumed its blast furnaces to full capacity.
Figure 2: Period when shortages of steel were being experienced
Source: SEIFSA Survey Feb 2021
2.4 Communication from supplier on the reasons behind the shortage of steel
According to the survey results, 79.1% of the respondents indicated that the supplier communicated on the shortages of steel amid the regular engagements with the Sales and Marketing team at ArcelorMittal SA (AMSA), with 20.9% indicating no communication from the supplier, as depicted in figure 3.
Figure 3: Communication from supplier on reasons behind steel shortage
Source: SEIFSA Survey Feb 2021
2.5 Impact of the steel shortage on your business
In terms the impact that the shortage of steel had on businesses’ operations, the situation varied across companies. However, the disruptions caused to the production was evident. Over 40% of the respondents indicated major disruptions in production, supply and longer lead times. There were also companies that opted to retrench their workforce, as depicted in figure 4.
Figure 4: Impact of steel shortage on business operations
Source: SEIFSA Survey Feb 2021
2.6 Approach in addressing the shortage for your business
A number of companies took some strategic decisions to deal with the shortage of steel. These decisions included the following actions:
- Buying extra stock;
- Using alternative steel, where possible;
- Importing steel, even though tariffs were high;
- Increased stock holding;
- Manufacturing with available material;
- Extensive networking for alternative supply;
- Prioritizing production;
- Used alternative sources, but at high cost;
- Reduced confirmed order supply;
- Increased stock on hand (intermediary parts and raw materials);
- Absorbed price increases; and
- Product design changes.
2.7 Proposal to supplier to finding a solution to the steel shortage
Several proposals were put forward to the supplier in dealing with the shortage. These proposals included:
- Suppliers should source material overseas;
- Regular maintenance of furnaces;
- Local production must be able to satisfy local demand;
- Be competitive;
- Increase production; and
- Offer reasonable stock prices.
2.8 Any other comments that need attention with regards to steel industry in SA
In the responses by companies on other matters that need attention, the following stood out:
- The quality/output of AMSA is getting worse and needs more attention; • Regulation needs to be fair and create a competitive market;
- The issue of steel shortage requires urgent attention since it is opening doors for international competitors;
- Transformation of the industry is required to increase the participation of small to medium enterprises;
- The critical shortage of material will be the single biggest cause for medium-sized companies to close down, since South Africa experiences a monopoly in the supply of material;
- The steel industry has promised to make up the supply shortfall, but so far this has been unsuccessful;
- Either create incentives for the industry to get cheaper steel or for exporting local manufactured products;
- More companies want to purchase products that are manufactured in South Africa rather than importing them, but the Government does not incentivize them to do so; • Government needs to intervene to assist in boosting the economy by keeping manufacturing in-house;
- The unstable increases of steel prices need to be addressed;
- The impact on mining customers’ needs should also be addressed urgently; • Clear communication to help define future risk is required;
- Steep price increases, coupled with uncertain supply, are simply the issue at hand; • Employee costs appear to be the highest of all industries in South Africa;
- Enormous steel prices increase should be addressed; and
- Improving manufacturing capacity and competitiveness.
2.9 Policy suggestions to the Department of Trade, Industry and Competition (DTIC)
Suggestions being proposed to the DTIC are the following:
- Remove import duties and levies;
- DTIC to engage all stakeholders and plan how to keep the steel supply constant in South Africa;
- Afford opportunities of alternative sources of supply;
- Allow imports and keep pricing in the market competitive;
- Open more local mills;
- Curb steel import flood from China; and
- Ensure that the local steel industry has proper sustainable plans to upgrade to new technology to reduce steel production price.
3. FEEDBACK ON ARCELORMITTAL SA ENGAGEMENT
A committee comprising the following individuals met with AMSA CEO Kobus Verster at AMSA Head Offices in Vanderbjilpark on 24 February 2021:
- SEIFSA CEO Kaizer Nyatsumba;
- SEIFSA Chief Economist Chifipa Mhango;
- DEFY CEO Evran Albas;
- Reinforcing Steel Contractors (Pty) Ltd Shareholder and Operations Director Ernest E Volschenk; and
- Structa Group Director Carlo Martemucci.
In the meeting, Mr Mhango presented the findings of the survey results, following which there was engagement on the key identified matters.
The following were the highlighted responses from ArcelorMittal SA:
3.1 The matter of closing ArcelorMittal SA
Steel is a significant and integral part of the industrialisation process and is important in infrastructure development for any economy. Having a primary steel producer in our own economy works to the advantage of the economy, hence the presence of producers such
as AMSA is very key. It takes away the frustration of importing; on average, it can take up to three months for stock to arrive in the country, despite its origin.
3.2 The challenges of AMSA’s capacity to supply
During lockdown level 5 in March 2020, production was stopped totally. This meant switching off the blast furnaces. As lockdown measures were being relaxed into the year 2020, production resumed. However, it should be noted that a blast furnace is not like an oven. It takes about six to eight weeks for the furnace to heat up when it has been off. That caused supply problems for AMSA as demand outpaced supply as feeder market segments in the downstream also resumed operations under more relaxed lockdown levels later in the year.
3.3 The issue of steel prices
A key fact about steel prices is that these are internationally priced. Globally, steel prices increased by almost 50% during this period. This trend is similar to that of most commodity prices. AMSA’s prices are monitored by the Government as part of the agreement entered into when import tariffs were initially put in place. The price basket of countries being followed by AMSA to set prices has a formula, and the factors have followed international price trends.
3.4 Remedies on ability to supply steel material to meet demand
AMSA has indicated that normal supply of flat steel products will be achieved by the end of March 2020 since the company is currently producing more than it normally does per month in order to address the lag caused by the lockdown. As for long steel, the blast furnace is going through maintenance, which is normal. AMSA gave the assurance that supply will also return to normality by June 2020, with a similar approach to producing more than normal monthly.
3.5 Concerns about quality of steel
AMSA was adamant that the quality of steel being supplied to its customers cannot be compared to imported steel. Mr Verster said AMSA meets SABS compliance standards and has been tested on key national projects. Therefore, AMSA argued that this concern by some customers was not based on facts.
3.6 Communication with customers
AMSA has indicated that regular communication takes place with its customers through its Sales and Marketing team. Mr Verster said AMSA customers had forecast low demand during the 2020 lockdown, hence the company decided to reduce its production capacity.
3.7 ArcelorMittal SA importing from its other countries’ operations
AMSA indicated that lockdown measures were also implemented in other countries, hence the supply situation in those countries was similar to that which obtained in South Africa. Mr Verster said at this stage there is no extra capacity across its other countries’ operations for the company to import. He argued that, in fact, importing will not address the challenges since it takes longer for t products to land in the country. He said that, on average, the waiting period is three months.
Following the engagement with AMSA, we are encouraged that solutions to the challenges experiences by the sector are being implemented. AMSA has committed to ensuring normalization of production supply by the end of March 2021 for flat steel products, with long products supply to be normalized by the end of June 2021. This will be done with increased monthly production to address the backlog.
AMSA has also committed to continue communicating with its customers as it deals with the concerns which have been raised, some of which just require customers to understand its’ pricing model better, which is based on a basket of international steel prices from developing and developed countries. As such, the price trends are aligned to international prices, which have increased by 50% from 2020, while AMSA’s prices increased by an average of 45%.
The meeting concluded with a proposal for AMSA to issue communicate more frequently with downstream fabricators, including through SEIFSA’s channels, on the progress being made to deal with steel shortages.
Kaizer M. Nyatsumba
Chief Executive Officer