Business

State to act on steel pricing

7 September 2010

The South African government is intent on using policy tools to achieve competitive steel pricing to benefit downstream industries in the country, says Trade and Industry Minister Rob Davies.

"Our research, our analysis now is telling us there were obligations, and we are going to ensure that those obligations are fulfilled," Davies said in Cape Town on Thursday. "That is basically is what we are looking at in our task force, [to] identify the possible options."

The minister, who spoke on the sidelines of a press briefing that saw renewed calls from MPs for regulation, declined to say what form of intervention the state would choose.

Developmental goals

He said an interministerial task team had found that developmental goals for the steel industry were fundamentally undermined by enshrining them in contracts with Kumba Iron Ore and ArcelorMittal.

This weakness had been highlighted by the ongoing dispute between the two protagonists, which was now subject to arbitration.

"We believe that the unbundling of Yskor in 2001 ... embedded two very important developmental objectives, and the first one was that a proportion of all ore which is mined at Sishen is made available at cost plus three percent to support competitive steel manufacturing in South Africa.

"And the second one was that the beneficiary ... would be required to pass that on in the form of a competitive steel price for downstream industries that use steel.

"The weakness that has probably emerged is that those obligations were entrenched in contracts between two discreet companies, and those contracts then became the subject of dispute."

The task team, grouping officials from trade and industry, economic development and mining, was looking at how government could "reinstate those developmental obligations".

"I am not prepared to say what we are going to do, what leverage we are going to deploy but as I said we are going to identify the levers that we have to ensure that we get the public and developmental objectives on a higher ground," the minister added.

Steel price impact

His remarks came after Louise Fubbs, the chairwoman of Parliament's portfolio committee on trade and industry, announced that she would call public hearings to "interrogate" ArcelorMittal and other industry players on the impact of steel prices.

Fubbs said she was not expected to wait for the final recommendations of the task team as the situations was too dire.

"We take it so seriously, this matter of irresponsible pricing, without justification, that we are now going to ... interrogate this in such a manner that industrialists, manufacturers who are feeling in industry and manufacturing the impact of this, will come and comment.

"We cannot wait as it were for the completion of the work of that task team," Fubbs said. "Good heavens, what will they get up to next? We have to arrest them in their tracks.

"They are making their millions without beneficiation at all," she said.

The committee will also call the Competition Commission to the hearings to comment on the conduct of the iron ore and steel sector.

Policy tools

Department of Trade and Industry (DTI) deputy director-general Nimrod Zalk said earlier this month that ArcelorMittal had failed to pass on the benefits of the low-priced steel it received from Kumba Iron Ore to downstream industries, and that it was clear that "moral suasion" was not sufficient to change the situation.

Zalk said policy tools under discussion included a mineral rights regime, competition policy and legislation, trade policy and steel industry investment to encourage competition.

Fubbs said the committee was prepared to consider introducing legislation to force the main players in the industry to adhere to a developmental steel price. She said the fact that ArcelorMittal was a multi-national company posed no obstacle to doing so.

MPs have in recent weeks sharply criticised the department for allowing ArcelorMittal to get away with prices that failed to meet the agreed developmental model for the past six years.

Industrial policy action plan

Fubbs's remarks came at a press conference where the committee released the outcome of its deliberations on the government's 2010/11 Industrial Policy Action Plan (IPAP2).

She said the action plan had been strengthened by an undertaking from Finance Minister Pravin Gordhan to release R20-billion in tax incentives for IPAP2 projects over the next five years.

"R20-billion will be made available over five years to IPAP2 and other areas dealing with industrialisation."

The National Treasury could not immediately provide more details of the tax incentive package.

Sapa