| Work Detail |
The decision has been in the works since 2023 ArcelorMittal South Africa is to close its Longs (steel) operations in Newcastle and Vereeniging, impacting at least 3,500 jobs. The announcement on Monday (6 January) is the culmination of the company signalling its intention in November 2023 that it would wind down its long steel business. In a press statement today, the company cites weak economic growth, high logistics and energy costs, and an influx of low-cost steel imports, particularly from China, as the main reasons for this decision. “Persistent high logistics and energy costs, combined with insufficient policy interventions (especially those policy decisions made some time ago (namely, the Price Preference System [PPS] and Export Scrap tax) relating to the substantial subsidisation of scrap-based steelmaking operations to the detriment of the Newcastle Works – which beneficiates South African-sourced raw materials), have left the Longs Business unsustainable,” said ArcelorMittal South Africa. The company said that despite extensive consultations with government and stakeholders to find viable solutions to sustain the Longs Business, progress was insufficient to avert the wind down. “The Company will now transition the Longs Business into care and maintenance. “Steel production is anticipated to cease by late January 2025, with the wind-down of the remaining production processes completed in Q1 2025.” ArcelorMittal decision to close Longs business in SA in the making since 2023 In November 2023, the Company said it had adopted a variety of interventions over the past few years to secure its long-term sustainability, including aggressive cost-cutting activities, increased raw material cost savings, asset footprint modifications, and numerous other productivity initiatives. Despite these best efforts, ArcelorMittal SA said the initiatives were unable to counteract the cumulative effect of the following: A slowing economy and a difficult trading environment: As a result of South Africa’s low GDP growth, the country’s apparent steel consumption (ASC) has decreased by 20% in the last seven years, reaching levels of around 4 million tonnes, reflecting low market demand in key steel-consuming sectors, limited infrastructure spend, and project delays, resulting in market overcapacity and overall weaker business confidence. National limits outside the Company’s control: high transport and logistics costs, as well as escalating energy prices, compounded by well-publicised logistics failures and their cost impact, as well as the country’s ongoing electricity challenges. Scrap advantage over iron ore: The implementation of a preferential pricing system for scrap, a 20% export duty, and, more recently, a ban on scrap exports has given steel production via electric arc furnaces an ‘artificial’ competitive advantage over steel manufacturers beneficiating iron-ore to produce steel. “These structural market issues are beyond ArcelorMittal South Africa’s control and do not appear capable of being resolved in the foreseeable future,” the company said at the time. Sector facing financial headwinds In today’s announcement, ArcelorMittal SA said the persistent overcapacity in the global and local markets, and unsustainably low international steel prices have further exacerbated the business’ structural difficulties. It said asset utilisation in the Longs Business reached only 50% as weak market conditions necessitated the operation of its blast furnace at the lowest level technically and responsibly possible. Commenting on the decision, CEO Kobus Verster said: “It is with deep regret that we must take this difficult decision. Over the past year, our employees and dedicated management team have shown remarkable commitment and resilience in the face of serious uncertainty. “Unfortunately, despite everyone’s best efforts, including significant engagement with stakeholders, the structural challenges in the Longs Business were not resolved. While this outcome is deeply disappointing, especially given the economic challenges facing South Africa, we remain focused on securing a sustainable future for the remaining operations.” The impact on jobs This wind down decision will directly affect operations constituting the Longs Business, namely, at the Newcastle and Vereeniging Works, and AMRAS (the rail and structural subsidiary). Newcastle’s coke-making operations will continue, though scaled back to reflect reduced demand. There will also be a knock-on impact on certain roles in the Flat Business as well as for some personnel within the corporate support service areas. It is envisaged that approximately 3,500 direct and indirect jobs will be affected, the company confirmed. “The broader economic effect on induced jobs is expected to be significantly higher, especially in the Newcastle region.” The company said the South African steel industry is currently facing its greatest sustained challenge since the 2008/09 financial crisis. “International steel prices remain unsustainably low amidst record Chinese exports, with Chinese Hot Rolled Coil and Rebar prices retreating to below $500 per tonne levels in Q4 2024. “Furthermore, ever-higher Chinese exports have led to global announcements of production stoppages, capacity cutbacks, and plant closures, with international markets prioritising fair trade actions and reviewing decarbonisation ambitions due to affordability concerns.’ Bleak outlook for ArcelorMittal SA ArcelorMittal SA said South Africa’s crude steel production for 2024 is anticipated to be 2.3% lower than in 2023, with imports increasing nearly 50% since 2018 and exports declining by 40%. “The weak domestic market for Long steel products, coupled with the overcapacity of local and international steel production, has left the business unsustainable despite ongoing efforts.” At the inaugural sectoral engagement convened by Steel and Engineering Industries Federation of Southern Africa (SEIFSA) and the Department of Trade, Industry, and Competition (DTIC) in November 2024, it was unanimously agreed by stakeholders that radical interventions were required to address the decline in the steel and engineering value chain. In terms of financial performance, the company said it anticipates a significant decline in earnings, with earnings per share expected to decrease to a loss within a range of R5.48 to R6.21 per share, compared to the previous year’s loss of R3.52 per share. Headline earnings per share are projected to decline to a loss between R4.06 and R4.41 per share, from the previous year’s loss of R1.70 per share. “These increased losses reflect the challenging market conditions, including unsustainably low international steel prices, record Chinese exports, instability of the blast furnaces operations in the Flats Business in the second quarter, and the impact of the Longs Business wind down costs, which include approximately R2.7 billion in asset impairment, wind down, and severance charges. “Revenue for 2024 is expected to decline by more than 5% compared to 2023, driven by weaker net realised prices, reduced asset utilisation, and the challenges in the Longs Business.” |
