Steel makers want State to impose tariff on imports after price slump

1 February 2016

Local steel makers now want the Government to impose punitive tariffs on all finished steel imports. 

In a petition to the National Treasury, the manufacturers through their umbrella body Kenya Association of Manufacturers (KAM), they want the government to enact this to cushion local industries against flooding of cheap steel imports, which has driven some players out of business and led to massive lay-offs. 

KAM has requested government officials to enact a temporary duty rate increase to 25 per cent from the current 13 per cent or $250 (Sh25,766) per metric tonne, whichever is higher, for steel imports. 

Currently, finished steel coming into the country is slapped with 13 per cent duty (about $75 dollars per metric tonne or Sh7,729), which the association feels does not offer sufficient protection in an industry that is characterised by high conversion rates. 

Kortni Rao who heads the steel sector at KAM said that the conversion cost of a tonne of steel is about $200 (about Sh20,613) per metric, which is way above the Sh7,729 that steel imports are slapped with. Rao blamed the huge conversion cost to high costs of power, finance and labour. Local manufacturers believe the temporary measure should go a long way in helping the industry regain its footing.  

Steel lost $280 (Sh28,858) per metric tonne or 57.14 per cent during the last 12 months from $490 (Sh50,502) per metric tonne in January of 2015. This comes a week after Weekend Business carried a story highlighting the bleak state of the steel industry. 

As global prices of steel have tumbled to their lowest levels in a decade, local manufactures have found it difficult to compete against cheap imports of finished steel from such leading producers of steel such as China and Russia. Production of steel in these countries is highly subsidised. 

As the Chinese construction industry has slowed, manufacturers of steel in the world’s second largest economy have been forced to pump most of the metal into the global market in what some experts say has resulted in steel-glut. 

Kenya’s steel industry has shed close to 18,000 jobs so far. Kenya’s biggest steel manufacturer Devki Steel Mill Limited also confirmed that they have since sent home 2,000 employees since the global prices of steel started plummeting. 

Rao agreed that cheap steel is good for any country. However, he insisted that it should not be priced at the same rate with the raw materials such as iron ore and billets which local manufacturers use to manufacture steel. “It means all the 38 manufacturers have to close down to convert their businesses into trading houses. Some have already converted,” he said. 

The manufacturers see the influx of steel from China as a form of dumping. In international economics, dumping is predatory pricing which occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production.

In November 2015, steel industry’s capacity utilisation stood at 20 per cent in melting plants and 40 per cent in rolling mills in what the association thought was not a sustainable situation. 

Besides the short-term measures, the association would also like long-term strategy to be put in place. These include improving import inspection efforts to prevent smuggling and evasion of taxes and duties on steel products. They would also like the government to increase efforts towards energy rates. 

Rao warned that should the government not take action and forestall the closure of manufacturing firms, then there would be far-reaching effects including reduced gross domestic product (GDP). 

Also, about 500,000 people depend either directly or indirectly on the steel industry and closure of the mills would render these people without source of livelihood. Moreover, the fact that steel sector consumes around 300 MW of power with Kenya having embarked on major enhancement of power generating capacity will leave the country with excess power. “It means the public has to bear the excess power produced as you know we cannot store power,” said Rao. 

Finished steel has been coming into the country at a price similar to raw materials including iron ore, which has made it difficult for most local manufacturers to compete. 

“Boosted by cheaper iron, a tough domestic market, and government subsidies, the rise of Chinese steel exports -- notably in steel segments produced by Kenyan steel makers such as billets, reinforced bars and wire rods -- is the crucial element in all steel markets across the world, including Kenya,” reads the petition in part.