Perspective – March 2016

johnI visited a member recently and was shocked at the difficulties they are facing. Their factory was established in 1983 and by 1989 they were employing 1000 people. Today they employ 48. Their consumption of stainless steel has dropped by 85%. It is heart-breaking to see banks of mothballed machines. We have all heard these stories before, but to witness this firsthand brings it home. The problem is that they are unable to compete with the Chinese. Imports of finished products are coming into the country at a lower price than they can source the stainless steel primary product. Added to this, they say the Chinese material is a lower grade stainless steel than is suitable for the application.

mcsteel vrnThis is not unique to South Africa. Recently, the Financial Express reported that the Indian domestic stainless steel industry has urged the Indian government to double the import duty on their finished products to 15% and nullify the duty on raw materials not available locally.

The low cost of finished products is related to the subsidised production of primary products. Steel Trade Today reports that AK Steel Corporation, ATI Flat Rolled Products, North American Stainless and Outokumpu Stainless USA LLC, the four principal US producers of stainless steel sheet and strip, filed anti-dumping and countervailing duty petitions charging that unfairly traded imports of stainless steel sheet and strip from the People’s Republic of China are causing material injury to the domestic industry.

The International Stainless Steel Forum’s Short Track Report for stainless steel primary producers for December 2015 showed that only 42% of respondents felt that current orders were sufficient.

This compared with 56% in December 2014. While 29% of respondents felt that current business conditions were sufficient compared to 44% a year earlier., only 4% felt that business would improve in the next three months, while 17% of respondents felt that business would deteriorate.

In December 2014, 19% felt that business would improve and only 4% felt that it would get worse. So, clearly the overall mood in the international stainless steel industry has deteriorated in the last year.

What about South Africa? Sassda has recently compiled the statistics for 2015 and these are shown in the graph.

stainless steel apparent consumption

There was a slight up-tick of total supply into the local market which was 0.42% higher last year than in 2014. However, there was an increase in re-export of primary products, which then lowered the South African Apparent Consumption.

(Apparent consumption is defined as local production plus imports minus exports – all of stainless steel primary products). The Fitted Average Growth Rate (FAGR) has shown a 9.5% decline per year, since 2012, compared to the 8.7% average annual growth seen from 1996 to 2007.

The general expectations of our members is varied but anecdotally, most members feel (and hope) that business will be similar to last year, with some feeling that we may see a fall in apparent consumption of 5 to 10%. Sassda will survey members on a monthly basis in the future with the same three questions as those used in the ISSF’s Short Track Report to allow a more representative analysis of the state of our industry.

sassda market strategy

So, what about our member who has lost 95% of their workforce and reduced their stainless steel consumption by 85%? Designation, where State Owned Corporations are compelled to buy local is a possibility, but this is difficult to enforce  and previous efforts (with Solar Geysers) resulted in companies fronting as manufacturing entities, but in reality being importers from China. The SABS has been mandated to audit companies but this expense has to be borne by the manufacturing company. In addition an SOC is only compelled to buy local if the price is not significantly higher (30%?, 70%?) than an imported equivalent.

There is the possibility of increasing the import duties by applying to ITAC to increase the Applied Rate to the Bound Rate of
up to 30%, depending on the product.

In addition, trade remedies such as antidumping duties and countervailing duties could be applied for. All of these options are onerous and expensive and at a meeting some time ago, between SAISI and the dti, it was explicitly stated that South Africa will not risk future investment, nor the huge trade account with China through investigating possible subsidies being awarded by the Chinese government to its industries, particularly in the steel and stainless steel industries.

Sassda has a very good relationship with the ferrous metals desk at the dti and we will continue to lobby for designation and protection of our industry to ensure fair competition. We are also continuing with our communication campaign, free technical advice, educational activities and marketing exports of South African manufactured exports.

John Tarboton
Executive Director, sassda

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