February Coverage Report

February Coverage Report PRINT South African Builder 01 February 2016,p.7

City Press 7 February 2016, p.18

Financial Mail 11 February 2016,p.41

Engineering News 26 February 2016,p.42

Online Financialmail.co.za Financial mail Arcerlormittel SA: Make or Break 11 February 2016 Article link: http://www.financialmail.co.za/moneyinvesting/2016/02/11/arcelormittal-sa-make-orbreak ARCELORMITTAL SA, which has agreed to pay R1.5bn to the competition commission the largest fine ever for anticompetitive behaviour will complete a study for the construction of a gas power station in Saldanha before the end of this year. The move to produce power independently of Eskom at the Saldanha Works is being driven by the extremely high cost of electricity, which, coupled with low demand and prices for steel, has put the future of the steel plant in the Western Cape into question. Electricity accounts for 30% of the plant s costs. Eskom is applying for a 16% tariff increase for this coming year, and power prices have already more than doubled over the past five years. Dean Subramanian, ArcelorMittal s chief financial officer, says once a bankable feasibility study has been completed and project finance for the programme secured, it could take about two years to complete the gas power station. It could be done in two years but it would be very tight. The proposed plant would more than service its peak usage of 220MW. It is hoped that the balance of the power will be sold to other groups in the area, where the Saldanha special economic zone is already home to oil and gas services businesses. ArcelorMittal last week put the Saldanha Works plant on a review process. The 1.2Mt capacity plant can roll steel to a thickness of 1.6mm, and can be used to target the export market in East and West Africa, says outgoing CE Paul O Flaherty. It is a make or break year for ArcelorMittal. If it is to survive, a lot of things have to go right for the company. It must conclude an empowerment deal, finalise the appointment of a new CE and work hard to build and grow new markets for itself in Africa. Much of this it can do alone, but the critical elements to its success are all in the hands of the state. It is not just ArcelorMittal that is battling for survival. Other steel companies such as Cape Gate, Scaw Metals and Evraz Highveld Steel & Vanadium are also under stress. Evraz, the second-largest steel producer in the country, is in business rescue and its hopes of escaping liquidation dimmed this past week when Hong Kong based International Resources decided to walk away from the deal. ArcelorMittal SA is waiting for the department of trade & industry to support its application for safeguard duties against Chinese imports. The duties would buffer the thin rolled steel that Saldanha supplies to the domestic market. So far maximum import tariffs of 10% have been approved on just five of the 10 types of steel for which ArcelorMittal has applied for protection, but only three have been implemented. The most

important protection for the firm is the safeguard duties. Five categories of steel have been identified by the group as needing protection from dumped steel from China. It is not just safeguard duties that ArcelorMittal is waiting for. In coming to an agreement to pay the largest antitrust fine ever, the steelmaker has also been negotiating an integrated package of measures for government support, Subramanian says. A central component of this package is regulation of the prices ArcelorMittal will be allowed to charge in good times as well as bad times. Its dominance and control of the local steel market has frustrated government s decades-old ambition to have a developmental price for steel that would support the development of SA s heavy industry. The new fair price for steel mechanism will be benchmarked on the cost of steel that manufacturers of large capital goods have to pay in their domestic markets. A basket of markets will be selected to use as the reference point. In effect we will become a regulated utility, O Flaherty says.

Financialmail.co.za:Financial Mail FM Magazine Index February 11 2016 11 February 2016 Article Link: http://www.financialmail.co.za/features/2016/02/11/fm-magazine-index-february- Mention on page 41 Engineeringnews.co.za Engineering News Merchants, consumers at odds over proposed new scrap export rules 12 February 2016 Article link: http://www.engineeringnews.co.za/article/big-scrap-looms-over-proposed-new-scrapexport-rules-2016-02-12 South African scrap merchants and domestic scrap consumers are taking strongly opposing positions regarding proposed amendments to the price preference system (PPS) policy guidelines, which will govern the future exportation of ferrous and nonferrous scrap metal. The proposed changes were published by the International Trade Administration Commission of South Africa (Itac) in the Government Gazette of December 11 and the public comment period was extended until last week. Print Send to Friend 0 0 The amendments seek to align the PPS with the Second-Hand Goods Act and government s black economic empowerment policy, while also tightening up permit application and administration processes, right down to a stipulation of the times at which PPS-related transactions can be concluded. In addition, Itac has included a clause specifying that all metal scrap be exported through a single harbour, with Port Elizabeth having been designated for the purpose. The Metal Recyclers Association (MRA), which has over 100 scrap-dealer members representing 70% of the market by volume, is objecting to the proposed changes, describing them as punitive. It has also written to Economic Development Minister Ebrahim Patel requesting an urgent meeting to canvass alternatives. MRA chairperson Quintin Starkey tells Engineering News that the PPS has been progressively tightened since its introduction in 2013 and that the proposed changes will have serious unintended consequences. They will result, he argues, in a further decline in scrap prices, which will place additional pressure on its members, through continued job losses and business closures. The proposed changes will also jeopardise the livelihoods of tens of thousands of informal scrap-metal traders the MRA estimates there to be 400 000 such traders, who support as many as 1.8-million dependants. He says they are also inappropriate in the context of a yearly ferrous scrap surplus, which the MRA estimates at between 1-million and 1.5-million the domestic industry collects about 3.5-million tons a year, of which the consuming industry only trades in 1.5-million tons. The onerous requirement of insisting on all scrap being exported through Port Elizabeth would also add about R700/t to transport costs, which would be passed on to the generators of scrap in the

form of lower prices. The Road Freight Association (RFA) also objects to the designation of Port Elizabeth as the sole port of export, arguing that it could negatively affect the viability of hauliers. Road freight operators, the RFA argues, are typically able to rely on a return leg from Durban when transporting scrap from the interior of the country. However, there is now a serious risk of the return trip from Port Elizabeth becoming a dead leg, which could result in some hauliers closing down. However, Itac spokesperson Foster Mohale argues that a designated port has many benefits and will contribute towards the objectives of improving the administration of the system. The proposed tightening of the PPS system introduced primarily to improve domestic scrap availability and facilitate a 20% to 30% discount to export prices for local consumers is broadly supported by scrap consuming industries, frustrated by the fact that the PPS is currently being bypassed by the scrap sector. In Support of Tightening Non-Ferrous Metal Industries Association of South Africa chairperson Bob Stone says that the majority of its members are supportive of a further tightening of the PPS guidelines, as there are currently too many loopholes. Government introduced the discounts and a restriction that scrap could not be exported before first being offered to domestic consumers in favour of introducing an export duty, or banning scrap exportation entirely; a measure that has been introduced in a number of other countries to shore up domestic supply. But Stone says he has yet to come across a member firm that has successfully negotiated the discounts initially anticipated when the system was introduced. There was also ongoing concern about high levels of metal theft, which was having serious economic and social impacts. Scaw Metals CEO Markus Hannemann adds that the proposed amendments should also be viewed in the context of the overall objectives of the PPS, which is to ensure the steady supply of quality scrap material to local users at a price that is reasonable in order to support local industry. Hannemann argues that that objective is currently not being met and that the Itac intervention is designed to try walk a middle road between an outright ban and continuing to sustain an export channel that is aligned to the beneficiation goal. Scaw, therefore, supports the proposed changes and also believes that the steel and engineering sector will benefit from the new policy, by securing current jobs and levelling a playing field currently made uneven by the large-scale export of quality scrap. Starkey acknowledges that the PPS is not working as envisaged, but also questions whether it is the best instrument for meeting government s aims. Our appeal to government is to have a proper roundtable consultation with all industry stakeholders on the proposed amendments and the PPS system in its entirety, he says, stressing that the MRA is keen to be part of a constructive solution. We need a platform through which to engage government and other industries to find a solution to the problem. Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Henk Langenhoven says further dialogue is probably necessary, as the proposals outlined in the Gazette do appear onerous. He also cautions that there are often negative outcomes even when new regulations are well intentioned. He says Seifsa remains concerned about the availability and pricing of scrap, which is affecting the competitiveness of the domestic industry. This is an attempt to plug the holes and stop the circumvention of the initial guidelines, Langenhoven explains. My worry, as an economist, is that

the new rules are so onerous that it might stop international trade completely. Others are dubious about whether further dialogue will yield a solution, particularly in the context of a material trust deficit that has developed, largely as a result of what is perceived to be the scrap industry s ongoing circumvention of the PPS. Discussions on this issue have been ongoing since around 1998. The conclusion in most of those meetings is that industry needs assistance we are becoming uncompetitive, we are closing, we are losing jobs, Stone says. So, we can go on talking for another 10 or 15 years, but by then the industry, which is already only half of what it was, will be no longer... and we will become totally deindustrialised. Itac s Mohale confirms that the reason for the proposed amendments is to improve compliance and enforcement. Improved, effective administration will support the objectives of the PPS to provide the necessary input material which will ensure internationally competitive beneficiation of scrap metals by the local consuming industry, he says. Mohale says the notice forms part of the consultation process and stresses that all comments will be duly considered. Sa Builder.co.za:SA Builder Steel sector meltdown continues 17 February 2016 Article link: http://www.sabuilder.co.za/2016/02/17/steel-sector-meltdown-continues/ The South African steel industry closes ranks to consolidate and develop innovative solutions as the steel crisis deepens At a special workshop for its members held in Johannesburg in January, the Southern African Institute of Steel Construction (SAISC) outlined its consolidated approach and progress in dealing with the steel crisis. Working closely with the Department of Trade and Industry (DTI) in recent months, the SAISC together with the DTI and other government and industry bodies, including SARS Customs and Excise division, aims to arrest the rampant deterioration of the crisis in the steel sector caused primarily by so-called dumping of cheap steel imports from China on the South African market which has resulted in plummeting prices, dwindling demand, closure of some steel mills and widespread retrenchments. Background In 2015 the crisis evolved into a full on meltdown as steel mills were forced to close and steel and metal companies began retrenching workers. Some steel fabricators are now in their third round of retrenchments. In August 2015, ENCA.com reported that Scaw Metals Group chairman Ufikile Khumalo referred to the crisis as unprecedented. The industry is seeing a crisis, I have never seen such a tough period in my history in the industry media is talking about a job bloodbath, we are talking about a company bloodbath, especially in smaller companies. These companies are highly indebted and are battling to survive.

In September 2015 ArcelorMittal SA announced the temporary closure of two of its steel mills, and is reviewing the future of its largest steel mill. January 2016 Addressing some 150 SAISC members from around the country, Paolo Trinchero, CEO of the Southern African Institute of Steel Construction (SAISC), advised that significant progress had been made through ongoing discussions with the DTI to alleviate the crisis. Working closely with the DTI, SAISC is taking a holistic approach on tariffs which is a complex task indeed requiring a fine balance. And beware as Chinese exporters continue to market heavily, warned Trinchero. An important part of its collaboration with the DTI, SAISC is playing a key role in enforcement by training Customs officials to seek out and recognise inferior steel product imports which are subject to revised tariffs. A statement released by the DTI in February reads: Government is working closely with all the stakeholders in the steel sector to secure agreement on a comprehensive package of measures to support South Africa s primary steel production capabilities. Following due process involving the International Trade Administration Council (ITAC), the Minister of Trade and Industry, Dr Rob Davies, has assented to tariff increases for three steel products. Investigations into another eight product lines have been finalised and await government approval. It is of course extremely important that tariff protection measures for primary steel producers do not result in higher steel prices being passed on to downstream, steel intensive manufacturing sectors. These sectors are labour intensive and any measures, which might erode the competitiveness of secondary steel intensive manufacturers, must be avoided. It is for this reason that government is very carefully weighing up the basket of measures under consideration and is consulting widely with all stakeholders, the downstream users included. The Ministers of Trade and Industry, Dr Rob Davies and of Economic Development, Mr Ebrahim Patel and senior officials of both departments, have held extensive talks both with executives of ArcelorMittal South Africa (AMSA) as well as with senior executives of the company at the recent World Economic Forum in Davos. In addition to a meeting held in October 2015 with all primary steel producers, downstream manufacturers, industry associations and labour, a further meeting will be convened by government in the near future to finalise the package of measures proposed by government. These measures are designed to secure the primary steel producers, safeguard downstream users and protect employment across the entire steel value chain. Government is confident that agreement will be reached in this regard. Once final agreement is reached an announcement setting out the package of measures to be adopted, in addition to those already implemented, will be made. Certainty in construction, mining and energy is essential Although there is too much supply and too little demand, there is still much that we can do in parallel with Government s interventions, continued Trinchero. Stimulation of the local market is key.

Referring to the National Development Programme (NDP), Trinchero emphasised that certainty in the construction, mining and energy sectors is absolutely essential. Release smaller bites of the NDP, he implored Government, and localise supply. The entire supply chain from design, tomanufacturing, supply and installation must be localised to support and stimulate not only our ailing steel industry, but the South African economy as a whole. Most importantly, Trinchero pointed out, is that municipalities in particular are now buying locally. Exports too are critical, and exchange rates are favourable, he said, noting that some 200 000 tons of steel product was exported in 2014, and a somewhat lower yet still very significant figure in 2015. As an industry we need to focus on accelerating our export drive with a view to doubling this figure! SAISC has also established Team SA, partnering with financial institutions to market South Africa heavily throughout Africa. A number of large steel heavy construction projects are in the offing for 2016, said Trinchero in closing. Both here at home as well as in the SADC, the DRC and Ethiopia. Innovation is the answer: as an industry we need to sharpen pencils, work smart, work hard, and be competitive Engineeringnews.com:Engineering News 26 February 2016 Steel major punts preferential pricing for scrap metal Article link: http://www.engineeringnews.co.za/article/steel-major-punts-preferential-pricing-forscrap-metal-2016-02-26 Steel manufacturing major Scaw Metals is supporting the proposed amendments to the price preference system (PPS) policy guidelines for local scrap metal. The PPS will govern future exports of ferrous and nonferrous scrap metal from South Africa through one harbour Port Elizabeth. Print Send to Friend 0 0 The amendments aim to align the PPS with the Second-Hand Goods Act and government s black-economic-empowerment policy, while also tightening up permit application and administration processes. Scaw Metals CEO Markus Hannemann says the company fully supports the PPS framework because its intent is to ensure the steady supply of high-quality scrap-metal material to local users; it also proposes reasonable prices that will enhance support for the local steel industry. More Insight Scrap metal issue requires inclusive industry debate Big scrap looms over proposed new scrap export rules He adds that the local steel sector will benefit from the amended PPS policy because it will result in securing jobs, based on increasing South Africa s competitiveness in handling local volumes of scrap metal and levelling the playing field in terms of international scrap metal handling. With competitive scrap prices, the industry will undoubtedly grow, thus creating additional jobs that are sustainable, and boosting the knock-on effect for the supporting industries, including refractory companies, sand and chemicals companies, machine shops, spares departments and consumables, Hannemann elaborates. Scaw Metals is serious about value addition, as opposed to the large-scale export of raw material to the detriment of industry, he states. Scrap is a precious resource, says

Hannemann, adding that, by limiting or halting exports, the domestic volumes of scrap metal will increase and, subsequently, the price of local scrap metal volumes will drop. He says there is no risk in losing international trade because the countries to which South Africa exports scrap metals ban exports of their respective scrap metals outright. He mentions that this recipe will assist the steel manufacturing industry in regaining its footing. Seeking Stabilisation Scaw Metals, like many other steel manufacturers in South Africa, recently succumbed to straining profit margins and overcapacity issues, implementing a restructuring programme that saw the issuing and enforcing of a notice in terms of Section 189A of the Labour Relations Act. The company stated in August last year that the unfortunate decision to file for a Section 189A was necessitated by local and global conditions in the steel industry. Hannemann notes that Scaw Metals is currently in a post-section 189 stabilisation phase: We are focused on ensuring the high morale of the remaining workforce, and alignment of the business objectives remains the priority. Beyond Section 189, he states that all Scaw Metals businesses are working towards improved performance. We recognise the need to adapt to a dynamic, changing and competitive landscape, says Hannemann, adding that the company can now explore new business prospects beyond its traditional boundaries. Imports and Exports Scaw Metals exports are increasing year-on-year, compensating for weak domestic demand, Hannemann says, adding that the company s largest overseas clients include North America, Europe, Australia and numerous African countries. However, the global economic slowdown, as a result of the China market crash, has affected Scaw Metals largest client base mining. The market is further being crippled by China s large-scale dumping of steel, which is reducing steel value and impacting on other sectors served by Scaw Metals. Therefore, Hannemann suggests that incentives to export value-added products should be considered by the South African government to mitigate further industry harm. We encourage the use of 100% locally manufactured steel products. Local value addition is key to developing South Africa s economy. The current local designation policy is inadequate to sustain the industry, and further designation opportunities exist and need to be implemented urgently, he concludes.