Investment in the basic iron and steel industry over the past ten years since the World Cup in 2010
Final sales of primary steel to industrial groups
Source: SAISI Sales to Industrial Groups 2018, Group analysis
2.2 PROBLEM STATEMENT: KEY CHALLENGES FACED BY THE INDUSTRY The industry has been a feature of the economic landscape for decades, but in recent years has not been able to adapt to new global trends (with some notable downstream exceptions). Domestic production of steel has declined in volume and its share of GDP has come down. One significant explanation is to be found in the huge expansion of steel production in China, which has increased its share of global steel output and has impacted on steel production in many traditional steel-producing markets. China now supplies a rising share of SA domestic consumption of steel and industry players believe that this has been aggravated by measures taken to exclude Chinese steel from the USA and the EU, which results in pressures to redirect surplus steel to other markets such as South Africa. Other factors include the rising price of electricity - much of South Africa’s metal industry was built on the indefinite availability of cheap power – and the import parity pricing of raw materials such as iron ore, coking coal and chrome ore. Obviously, these assumptions must be reconsidered in thinking about the future of the industry. The decline in both domestic production and demand has presented a challenge to the industry. The industry is largely in survival mode, which means that cost-cutting rather than investment in new technology, new plant and improved processes is dominating the thinking of much of the industry. There is no doubt that the challenge existed before the COVID-19 pandemic, but its effects have been accelerated and made more intense by the pandemic and the lockdowns around the world. The impact of this challenge affects the entire industry, from the primary steel makers to the downstream, value-added industry. Some companies continue to operate profitably and to export successfully, but most are not profitable, have weak balance sheets and are inward-focused rather than outward-looking. Some sectors, such as the foundries, have been affected more than others, such as the wire industry.
9 The South African Steel and Metal Fabrication Master Plan 1.0
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