SA's STEEL CRISIS: AMSA's outrageous pricing adjustments: THEIR EXPLANATION vs THE TRUTH

SA’s STEEL CRISIS: AMSA’s outrageous pricing adjustments:
THEIR EXPLANATION vs THE TRUTH.

By Gerhard Papenfus, Chief Executive (NEASA), 27 May 2021

In announcing two massive price hikes during the last two months, ArcelorMittal SA (AMSA) wrote a letter to its customers (click here to view) to justify these sudden increases totaling 23%. AMSA claims to have been “lagging behind” in terms of world steel prices, but the facts paint a different picture.

AMSA, a foreign owned monopoly in terms of flat steel products in South Africa, is protected against the importation of cheaper, better quality steel. This is done by imposing import duties totaling 18% on hot-rolled coil. 
 
Here’s the interesting part: if manufacturers import hot-rolled coil, it could be landed in, for instance, Gauteng for, yes, you guessed it, 18% cheaper than the AMSA price, if it wasn’t for the duties. AMSA simply priced in the duty protection it was granted by Government. 

THIS IS OUTRAGEOUS, TO SAY THE LEAST.

AMSA has convinced Government that the use of the so-called “basket of prices” to price their steel, will is fair and competitive. Firstly, the ‘basket of prices’ is an invention of AMSA themselves, who coined the term in 2006. In 2010, the Competition Commission found that AMSA “deliberately mislead Government when it comes to the ‘basket price’.”

Here we are, more than a decade later, and Government still accepts that the ‘basket price’ is fair in spite of the fact that, since the introduction of duties, many steel companies have either closed their doors or went into business rescue.

‘Localisation’ is the new buzz word in South Africa. But locally manufactured steel products have become uncompetitive due to manufacturers that are forced to buy expensive AMSA steel as their raw material. As long as the duties are imposed, ‘delocalisation’ will continue in South Africa as the importation of finished product escalates.

Propping up uncompetitive entities, as in the case of many state-owned enterprises (SOEs), i.e. ESKOM, SAA, Denel, SA Post Office, in fact all of them, benefits nobody, it only serves to drain the fiscus. Although AMSA is not an SOE, exactly the same principle applies.

No matter how you approach this, except, of course, from the viewpoint of a monopolist or a Marxist, protecting an uncompetitive entity is poor economics and severely detrimental to South Africa. It has to stop.

WATCH:
SA’s Steel crisis in three minutes

READ MORE:

AMSA vs the
STEEL INDUSTRY:
Stop the unfair trade practice by ArcelorMittal SA (AMSA)