/ 29 November 2023

Closure of steel operations a devastating blow, as 3500 jobs at risk

ArcelorMittal says it plans to mitigate further losses by cutting jobs and focusing on improving cash flows.
Last week, ArcelorMittal South Africa, the continent’s largest steelmaker, announced the winding down of its Newcastle and Vereeniging operations starting from January 2024. (David Harrison/M&G)

The announcement that Arcelor-Mittal is closing its long steel operations in Newcastle and Vereeniging has delivered a devastating blow to the economies of both towns, with up to 3 500 jobs on the line.

The company attributed some of the reasons for the closures to the current energy crisis, the collapse of South Africa’s logistics and transport infrastructure, the ban on scrap metal exports and the 20% export levy.

The Association of South African Chambers (Asac) chairperson Melanie Veness, who is also the CEO of the Pietermaritzburg and Midlands Chamber of Business, said current economic conditions in South Africa made it difficult for energy-intensive businesses to trade.

“It makes me sad to have to say it, but quite honestly, business closures should not come as a huge surprise to anyone, given the unfavourable environment in which businesses are forced to operate currently. You cannot make conditions impossible to trade in and then be surprised when businesses fail.”

Veness said the rate at which electricity prices have escalated over the past 10 years, coupled with the calamitous impact of load-shedding, a failing logistics system and poor economic growth was a recipe for economic disaster, especially for energy-intensive industries.

“We have reached the end of the road, there’ll be more business casualties if government doesn’t let the private sector in now to fix Eskom and Transnet, if our leadership don’t address safety and security issues, as well as service delivery failures at a local level, and rethink some of their anti-growth policies,” she said.

KZN MEC for Economic Development, Tourism and Environmental Affairs Siboniso Duma said one cannot underestimate the invaluable contribution made by ArcelorMittal South Africa to the local municipalities’ revenue base and creation of jobs for local residents.

“I have accordingly assigned the acting CEO of Trade and Investment KwaZulu-Natal Sihle Ngcamu to come closer to this matter. We have allocated resources as part of the implementation of our business retention and expansion strategy.

“Where necessary, efforts will be made to save some jobs at the steel company. We cannot afford to have 3 500 people added into the thousands of unemployed people who lost their jobs as a result of Covid-19, which destroyed our economy,” said Duma.

The MEC said the department understood that part of the challenges faced by ArcelorMittal was the decrease in the demand for steel. “This has been partly attributed to the cuts in infrastructure expenditure. Currently, only four million tons of steel are consumed in South Africa.

“In this regard, we continue as the department to work with all spheres of government to ensure the rollout of infrastructure,” he said.

In a statement, ArcelorMittal South Africa said shareholders have previously been advised of the efforts made to ensure the long-term viability of the Newcastle Works and the broader long steel products business (“Longs Business”). At the beginning of 2023, an optimisation programme commenced.

“Prior to this, over the past few years, the company implemented aggressive cost-saving initiatives, improved raw material cost savings, asset footprint adjustments and various other productivity initiatives. Unfortunately, despite best efforts, the initiatives implemented were not able to counter,” read the statement.

The winding down was due to many factors, including a slow economy and difficult trading environment.

“On the back of low GDP growth in South Africa, in the past seven years, the country’s apparent steel consumption (ASC) has reduced by 20%, reaching levels of around four million tons, reflecting low market demand in key steel-consuming sectors, limited infrastructure spend and project delays, resulting in overcapacity in the market and overall weaker business confidence.

“National constraints beyond the control of the company include high transport and logistics costs as well as energy prices, exacerbated by the well-publicised logistics failures and their resultant cost impact, and the prevailing electricity challenges which the country faces.”

“The introduction of a preferential pricing system for scrap, a 20% export duty, and more recently, a ban on scrap exports has allowed steel production through the electric arc furnaces route at an ‘artificial’ competitive advantage when compared with steel manufacturers beneficiating iron ore to produce steel,” outlined the company in the statement.

Kobus Verster, the CEO of ArcelorMittal South Africa, said that “the ArcelorMittal South Africa board and management have reached this point after having exhausted all possible options.

“As difficult as these circumstances are, we have a duty to ensure that the business remains sustainable in the long term, in the interests of the company and its stakeholders.

“The remaining business, after the wind down, will be on a more sustainable financial footing and be able to invest the appropriate capital in product development and available growth prospects.”

This article first appeared in The Witness.