RESOURCES: Steel Industry Crawling Out Of Trouble
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The recovery in the local steel industry is painstakingly slow. The only drivers keeping the industry afloat are Eskom power station and government low-cost housing and infrastructure development spending.
Unfortunately, any hopes of a recovery in the steel industry will be diminished should the proposed electricity price increases be approved for the next three years.
South African monthly crude steel production in August fell 32,2% year-on-year to an estimated 600 000 tons from 885 000 tons. The production in the first nine months of 2009 was down 25,9% to 5,16-million tons from 6,97-million tons for the first nine months 2008. (Source B.Day 26.09.2009)
These figures clearly indicate that SA's steel industry has gone through a considerable de-stocking exercise in 2009. In addition, a general lack of activity, demand and business confidence contributed further to the low production levels in 2009. As the year comes to an end, any hopes of increases in production or in the price of steel are dwindling fast.
Recovery in the industry will take longer that anticipated, leaving steel suppliers with limited cash resources and in extremely vulnerable positions.
The low demand for steel, combined with the low steel price and no major reductions in production costs will erode profits in many companies.
While the rest of the world's steel production has improved since April 2009, SA clearly lags behind by at least six to nine months.
In addressing the problem, government needs to stimulate the steel industry through infrastructure and energy spending. Even more vital, contractors must be paid by government on time for work completed. This would contribute to inspiring much needed confidence required to revive the steel industry.
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