Steel market thrust at risk

FUNDING: CITED AS KEY TO AMSA WOES

- Antoinette Slabbert

Extensive cheap funding by the Industrial Development Corporation (IDC) – a government entity – is one of the key mechanisms used for state protection of South Africa's mini mills, which produce steel products from scrap metal.

This results in overcapacity to the detriment of the steel industry, including ArcelorMittal South Africa (Amsa).

This is clear from a report published by XA Global Trade Advisors (Xagta) – XA's Scrap Metal Report No 2 – last month.

That was just weeks before Amsa announced the closure of its long-steel operations in Newcastle and Vereeniging, as well as its rail and structural subsidiary Amras.

Amsa, which produces steel from iron ore, said the closures would affect 3 500 jobs. "The broader economic effect on induced jobs is expected to be significantly higher, especially in the Newcastle region," it stated.

Market distortion

Xagta says there are three incentives used by government to drive up the demand for scrap metal: