In its July 2022 Steel Matters report the South African Iron and Steel Institute (SAISI) says South Africa’s steel consumption will miss the 5 ton target.
“After an exceptional recovery in steel consumption post Covid-19, apparent steel consumption was 5.1 million tonnes for the year in 2021. This was a 36% year-on-year increase in the country’s steel use. Included in the steel consumption however was the unexpected 1.6 million tons of imported primary steel products, equalling 31% of the country’s overall steel consumption. The reason for the high import levels was ascribed to limited local supply to address pent-up demand caused by the pandemic.”
“This was nevertheless the highest import to local supply ratio since the turn of the century. South Africa produced 276 500Mt of crude steel in June 2022, a 42% decline compared to June 2021. The significant decline in crude steel production is attributed to the reline of the blast furnace at ArcelorMittal South Africa’s Newcastle Works as well as intermittent stoppages at the company’s other furnaces due to unavailability of raw materials.”
“This came on the back of low crude steel production in May 2022 because of strike action. Not that any of these events impacted steel supply significantly, as steel demand diminished during the first six months and the outlook for the remainder of the year does not indicate anything better. It is, however, envisaged that the reline will improve long steel production reliability and stability to enable improved delivery to the company’s customers.”
“In the light of anticipated lower steel demand, we expect apparent steel consumption for 2022 to be around 4.7 million tons, a drop of 8.2% on last year’s performance and still all indications are that 25% of the consumption will be imported.”
So what stimulated steel demand in 2021 that is not present in the current demand mix? The consensus amongst steel users is that the import volume for 2021 included a 300 000 ton inventory adjustment, caused by the supply chain drying up during the Covid shutdowns, and that the country’s current consumption level is more reflective of the activity in the economy.
Steel consumption is unsustainable at current growth levels
“Capital investment decisions are among the most important indicators used by an enterprise because they influence an enterprise’s production, growth, shareholders’ wealth, long-term prospective survival, competitive advantage, and overall economic welfare. Further, they also provide an indication of business confidence within an economic environment. Investment in non-current assets such as buildings, equipment and machinery increases the firm’s production capacity to enhance the long-term profitability of the company, and is the most important indicator for steel consumption.”
Real gross domestic product (measured by production) increased by 1.9% in the first quarter of 2022, following an increase of 1.4% in the fourth quarter of 2021. The manufacturing industry increased by 4.9% and contributed 0.6 of a percentage point to GDP growth.
Primary steel imports in June 2022 almost doubled compared to pre-Covid levels
SAISI have also said that according to data released by the South African Revenue Service, imports of primary carbon and alloy steel products (excluding semis, stainless steel, and drawn wire) amount to 92 080 tons during June 2022, an increase of 8.3% compared with 85 046 tons imported during May 2022.
Imports of primary carbon and alloy steel products (excluding semis, stainless steel, and drawn wire) in June 2022 have almost doubled looking at pre-Covid June 2019 with 53 023 tons imported.