South Africa considers steel price cap

5 January 2011
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5 January 2011 | Nick Martindale

Buyers should welcome a move to limit steel prices in South Africa, a leading procurement professional has said. 

Late last year the South African government established an inter-departmental task team to explore the possibility of imposing a maximum price for iron ore and steel.

Evan Dold, chairman of the OEM Purchasing Council and vice-president, global purchasing and supply chain, at General Motors South Africa, said any cap could be good for steel buyers such as automotive manufacturers.

The government’s plan is to ensure that domestic prices of steel were no higher than the lowest quartile of global, said Vusi Mona, deputy chief executive of the GovernmentCommunication and Information System.

The move follows a private arrangement between Kumba Iron Ore and steel producer ArcelorMittal SouthAfrica (AMSA) last year, under which steel buyers agreed to an increase in the base price of steel.

The government initiative could help buyers with planning, Dold said. “If introduced, this limit should give the South African industry a better means of estimating future price risk in terms of the local steel prices,” he said. “Currently AMSA can suggest pricing at its own discretion.”

Many South African automotive firms are actively trying to increase the amount of local steel used in vehicles as a means of hedging against exchange rate risk, Dold added.

The government taskforce includes representatives from the departments of Trade and Industry, and Mineral Resources as well as the Ministry of Economic Development.

It will also explore other options designed to reduce the price of steel, including promoting new investment in the steel industry and strengthening the Competition Act, said Mona.

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