4. RESOURCE MOBILIZATION FOR INVESTMENT AND STABILIZATION 4.1 Credit insurance: the reduction of credit insurance and loss of cover for African countries to which the industry exports, are a serious problem, impacting both domestic sales and exports. Discussions have been held with the IDC, but it is necessary to investigate options to provide some risk cover to insurers to persuade them to restore cover to the industry. Alternatives are for instance that the steel industry establishes a mutual trade credit insurance company for self-insurance or that government establishes a state credit insurer to build onto the ECIC. 4.2 The IDC’s investment policies and strategies for the steel industry are being aligned with the requirements of the Steel Master Plan. The investment view will take into account the needs of the sector and sub-sector, as well as those of individual companies and investors. The focus will be on moving up the value chain (for instance to machinery) and on ensuring the viability and competitiveness of the primary steel industry. Too much capacity has been created by various funds, watering down the volume efficiencies which are essential in this industry. 4.3 Development funds. Government has established a R1.5 billion Downstream Steel Development Fund through the IDC to provide funding to the industry at concessional rates and to address weak balance sheets. In addition, the dtic industrial funding branch is developing a metal fabrication fund. There is an opportunity to optimize these two funds to unlock growth opportunities. There has been low take-up of the fund, apparently because of the very tight criteria and the administrative burden involved in making applications. The criteria for the funds should be reviewed and widened to allow more SMMEs and other firms to benefit. Many businesses could benefit from support for investing in new technology, products and processes, but the support is currently not available unless there is a significant transformation component. Cutting many small and medium-sized, often family-owned businesses off from support at this time of crisis in the industry should be reviewed, because the growth of the industry and jobs in general may be the best way to support transformation. 5. THE PRIMARY STEEL INDUSTRY AND STEEL PRICES: CARBON AND STAINLESS STEEL The price and security of supply of primary steel is fundamental to the success of the industry. The future of the industry depends partly on balancing the supply and demand for the types of steel required. There is uncertainty over the ongoing security of supply of both flat and long steel products to the downstream industry. Although it is not unanimous, the major companies in the industry, including the merchants and the downstream industry, believe that South Africa needs a primary steel industry which beneficiates ore. The challenge is to ensure primary steel production that is competitive and growing, able to provide steel inputs at competitive and sustainable prices and which directs itself to build downstream partnerships locally and in other parts of the African continent. Primary steel production in South Africa supports downstream industries, including mini- mills and foundries which utilise scrap metal originally derived from the production processes of primary steel producers. The production of primary steel (and South Africa has all the required ingredients) is deemed by most major role-players in the industry to be vital to the ongoing sustainability of the entire steel value chain. The sustainability of the steel value chain underpins the drive for the re-industrialisation of the country and has large multipliers for jobs and GDP. The industry should work from value-added products backwards through its value and supply chains to identify and eliminate bottlenecks and unrealistic margins. 5.1 The crisis in the steel industry is not only caused by the global over-supply. The industry has contracted in the context of low economic growth in South Africa over several decades, without a significant pipeline of infrastructure projects after 2010. Changes in ownership of primary steel plants has not led to growth and investment to the level required, and there are concerns about the impact on South Africa’s national interest. 5.2 An analysis of the carbon steel price is given below. In summary: the price of long steel has been depressed to below import prices by intense competition for the basic “commodity” products. The price of hot rolled coil is based on a basket of prices from other countries, excluding China and Russia. Initial studies of the price of steel to downstream converters and users indicate that the steel price from the primary producers is not always the reason why costs of downstream users are high. Margins are taken along the value chain. Further price studies are urgently required and should be carried out for the Steel Oversight Council as a priority, to ensure that the industry correctly targets the factors leading to uncompetitive steel prices. Stats
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The South African Steel and Metal Fabrication Master Plan 1.0
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