Impact of Provisional Safeguard Duty on Local Manufacturing of Hot Rolled Steel
The implementation of safeguard duties on hot rolled steel imports is likely to adversely impact local manufacturing.
The recent introduction of a provisional safeguard duty of 9% on hot rolled steel imports is set to have significant implications for local manufacturers, according to Pieter du Plessis, chief operating officer of XA Global Trade Advisors. He warns that this new duty will not only raise input costs for manufacturers but also jeopardize the sustainability of downstream producers of steel goods, regardless of whether they source their raw materials locally or import them.
While the duty specifically targets imported steel, it is anticipated that ArcelorMittal South Africa (AMSA), the primary domestic steel producer, will utilize this opportunity to raise the prices of its own products. The imposition of this safeguard duty follows an investigation by the International Trade Administration Commission of South Africa (ITAC), which was prompted by an application from the South African Iron and Steel Institute, representing AMSA. This investigation is ongoing, and the provisional duty will remain in place for a maximum of 200 days until a final decision is made.
Du Plessis emphasizes that safeguard measures, such as this duty, should only be implemented under specific circumstances—primarily when there is clear evidence of a surge in imports causing serious financial harm to domestic producers. However, in AMSA’s routine financial reporting, the company has attributed its financial and operational difficulties to various factors, including electricity supply issues, logistical challenges, labor problems, and unexpected plant breakdowns, rather than the impact of increased imports.
In South Africa, local downstream manufacturers often rely on a combination of domestically produced and imported steel to meet their production needs. XA Global Trade Advisors represents numerous agricultural equipment manufacturers who utilize various grades of steel products. While AMSA is capable of producing steel products of sufficient quality, there have been instances where the company has struggled to provide a reliable supply due to production inefficiencies and unexpected breakdowns. This unreliability forces manufacturers to maintain contracts with multiple steel suppliers to ensure a consistent supply, leading to the necessity of importing steel despite having existing contracts with AMSA.
This dual-supplier strategy results in increased inventory levels for manufacturers, as they must safeguard against AMSA's occasional delivery inconsistencies. Consequently, more capital is tied up in stock than would be necessary in a more reliable supply chain, driving up operational costs and diminishing competitiveness. Local manufacturers find themselves at a disadvantage, as they often face higher costs for materials and labor than the price of imported finished products, which can be landed for less.
The provisional safeguard duty is levied in addition to the existing 10% general customs duty on hot rolled steel, compounding the cost pressures on local manufacturers. Du Plessis argues that these increased costs will inevitably be passed down the supply chain, further exacerbating the challenges faced by local producers. The ongoing investigation will also consider public interest aspects, which ITAC will address during a public hearing. This forum will allow affected parties to voice their concerns regarding the safeguard duty and its potential impact on the industry.
ITAC has indicated that it will announce the date of the public interest hearing, inviting stakeholders to participate in the discussion. The outcomes of this hearing could significantly influence the final decision regarding the safeguard duty, which may lead to adjustments in the duty level or its complete removal. If the provisional duty is confirmed, it could remain in effect for a period of up to three years, further complicating the landscape for local manufacturers.
In summary, the provisional safeguard duty on hot rolled steel imports represents a complex challenge for South African manufacturers. While intended to protect domestic producers like AMSA, the duty risks inflating costs for downstream manufacturers and potentially harming their sustainability in a competitive market. The reliance on a mix of local and imported steel highlights the intricate dynamics of the industry, where factors beyond mere import levels play a crucial role in determining the health of local manufacturing.
As stakeholders await the outcome of ITAC's investigation and the public interest hearing, it is clear that the balance between protecting domestic producers and fostering a competitive manufacturing environment will be a pivotal consideration. The final decision could set a precedent for how safeguard measures are applied in the future and their broader implications for the South African manufacturing sector. It is essential for all parties involved to engage constructively in the upcoming discussions to ensure a fair outcome that supports the long-term viability of local manufacturers while addressing the legitimate concerns of AMSA and other stakeholders.
