Duferco calls for the DTIC to follow the data and rethink its approach to the South African steel industry

Duferco Steel Processing (Duferco) is calling for the Department of Trade, Industry and Competition (DTIC) to adopt a more far-sighted and even-handed approach that will benefit the South African steel industry as a whole. Ludovico Sanges, CEO of DSP, says that the DTIC’s approach to protecting the local flat steel industry unfairly benefits only certain sectors of a complex ecosystem.

“One could call this approach myopic because it clearly is not working and is actually strangling the important re-rerolling industry on which thousands of small-scale manufacturers depend. The data shows that far from stimulating local steel production, the uneven application of tariffs is simply removing competition and transferring manufacturing overseas,” he argues. “DSP is behind the concept of a Steel Master Plan, but it must support the entire steel industry, not just parts of it, creating fair competition that will serve the whole industry, including the substantial downstream sector.”

In 2016, the DTIC implemented a 10% tariff on imported hot-rolled coil with the stated aim of protecting the only local producer of the product, AMSA. DSP beneficiates hot-rolled coil to create galvanised steel and cold rolled steel, which is extensively used in the manufacturing and construction industries.

Inside Duferco Steel Processing’s plant

In fact, says Mr Sanges, the opposite has happened. The 10% tariff has made it impossible for DSP to compete in the local market, and it exited the local market at the end of 2020 at the cost of 40-odd jobs. It manufactures now solely for the international market – imports for the latter are exempt from the protective tariff.

“DSP aside, we have to ask whether the 10% tariff on hot-rolled coil is working for South Africa Inc, and with three years of data we have a factual base to answer the question with an emphatic ‘no’,” Mr Sanges says. “During 2020-21, our manufacture of uncoated cold-rolled coil for the domestic market reduced by 31 400 tons, with a corresponding increase in imports of 39 300 tons. Similarly, our coated domestic sales reduced by 83 200 tons with a corresponding increase of imports of 163 500 tons.”

“In other words, we lost a large amount of local manufacturing capacity to the benefit not of the local industry but our international competitors. Really, all this tariff has done is take a big competitor out of the local market, putting the downstream industry at the mercy of the remaining single producer. It has not resulted in increased production of hot rolled coil locally, it’s simply made it more profitable for AMSA.”

DSP’s locally produced steel products, using imported hot-rolled coil, compete successfully on the international market. The tariff thus effectively eliminates a high-quality, globally competitive producer of coated and uncoated steel to the local market.

Similarly, the producers of long steel have recently received additional protection via an export duty on exports of scrap metal. Long products already enjoy the benefit of government regulated scrap prices (PPS) and after investigation into the effectiveness of the PPS by the DTIC, it was decided that additional support was required to keep them profitable and competitive.

“The DTIC has shown that it is willing to support the producers of long steel products, so why does it continue to withhold support for the re-rolling industry? It just does not make sense, and the data clearly shows that it is having a massive adverse effect on the country’s industrial capacity, just at a time when we are supposed to be gearing up for a major infrastructure push,” he says.

“We made an application for a rebate on the protective tariff on hot-rolled coil in 2020 and still have had no reply. Without support from the DTIC, re-rollers will continue to battle fierce headwinds, weakening the Steel Master Plan immeasurably.”