Press Release – 2015/09/30 VULNERABILITY OF THE ENTIRE METALS AND ENGINEERING SECTOR VALUE CHAIN SHOULD BE CONSIDERED

SEIFSA Chief Economist Henk Langenhoven said that the Government should consider possible further protection measures across the entire value chain.

Mr Langenhoven said that price distortions of imported metals and engineering products were prevalent throughout the value chain. This was owing to subsidies and incentives given to manufacturers in some of the exporting countries, as well as market strategies to clear massive excess inventories that arose out of surplus production capacity worldwide.

“It is SEIFSA’s view that the entire value chain should be analysed and appropriate protection measures put in place to counter the wholesale destruction of the sector’s manufacturing capacity,” Mr Langenhoven said.

The current round of tariff announcements for basic steel products has been the result of a difficult trade-off between losing the whole sector – which represents 1,5% of GDP, R30 billion in foreign exchange earnings and employs 30 000 people – and causing some distortions of its own through the tariffs. The tariff protection was given with very strict conditions regarding domestic price increases and other obligations from the industry involved.

Mr Langenhoven said that fear did exist, however, that prices would increase, thus harming the downstream value chain, and that the measures would not do enough to stop the bleeding. Both results would be unsatisfactory.

“The reality is that companies in the downstream value chain are generally smaller than those in the upstream iron and steel industry. This is understood by all parties. Both the Ministers of Trade and Industry and Economic Development, as well as industry leaders within the basic iron and steel sector, have considered this and are keen to understand the impact on the ground. The producers stand to lose their markets if a proper balance is not attained,” Mr Langenhoven said.

SEIFSA, in collaboration with other industry associations, has embarked on an intensive process of analysis to understand the actual situation. The tariffs currently in place within the downstream value chain are interrogated, as well as the impact the new measures may have on the companies.

Mr Langenhoven said that in the bigger scheme of things, tariff protection remained a short-term solution, with potential side effects. In the long-run the sector needed to adjust structurally to the new environment.

“The sector has to adjust to exploit export market opportunities better, when these recover. It must also be allowed to supply domestic products to domestic infrastructure projects to a larger degree than is the case now. Domestic demand from the mining sector will only come after more stability, both in commodity markets internationally and labour relations internally, sets in,” Mr Langenhoven said.

He added that new and better ways also needed to be found to serve the automotive sector. Policy responses that support adjustment must take these dynamics into account.

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