Steel Shockwaves: ArcelorMittal SA Faces Economic Headwinds, Initiates Wind-Down of Long Steel Operations

  • Slow GDP growth and reduced steel demand in South Africa pose significant economic hurdles for ArcelorMittal.
  • National constraints, including high logistics and energy costs, further impact the company's operations.
By Lethabo Ntsoane

In a significant development for the South African steel industry, ArcelorMittal South Africa Limited has announced the initiation of a wind-down process for its Long Steel Products Operations. The decision follows extensive efforts to ensure the long-term viability of key operations, particularly the Newcastle Works and the broader Long Steel Products Business.

Economic Headwinds and Operational Challenges

Struggling Against Economic Slowdown

The company’s move comes in response to a challenging economic climate marked by low GDP growth in South Africa over the past seven years. The apparent steel consumption (ASC) in the country has dwindled by 20%, reaching approximately 4.0 million tonnes. This downturn reflects a decline in market demand across vital steel-consuming sectors, limited infrastructure spending, and project delays, contributing to overcapacity in the market and a general decrease in business confidence.

National Constraints Beyond Control

ArcelorMittal South Africa points to external factors beyond its control, including high transport and logistics costs, elevated energy prices, and the well-publicized logistics failures. These challenges, coupled with ongoing electricity supply issues in the country, have added to the operational burdens faced by the company.

Scrap Advantage Over Iron Ore

Another contributing factor is the preferential pricing system for scrap, which includes a 20% export duty and, more recently, a ban on scrap exports. This has created an ‘artificial’ competitive advantage for steel production through the electric arc furnaces route compared to steel manufacturers relying on iron ore.

Aggressive Cost-Saving Initiatives Not Enough

Despite implementing aggressive cost-saving initiatives, improving raw material cost savings, adjusting the asset footprint, and launching various productivity initiatives, ArcelorMittal South Africa found these efforts insufficient to offset the combined effects of the economic downturn and external constraints.

Wind Down Process Initiated

In response to these challenges, the Board and Management of ArcelorMittal South Africa have reluctantly decided to embark on a process leading to the wind down of the Longs Business. The affected plants include most facilities at Newcastle Works, the Vereeniging Works, and rolling facilities using Newcastle material as feedstock. The coke batteries, however, will remain operative.

Consultative Process and Job Impact

The wind-down process will involve a due diligence phase and a consultative, iterative process with key stakeholders, including customers, suppliers, organized labor, and others. A formal consultation process, in accordance with Section 189(3) of the Labour Relations Act 66 of 1995, will be initiated, with an estimated impact of approximately 3,500 employees (including both own and contract workers). The final implementation plan will determine the extent, timing, and phasing of the winding down of operations.

Focus on Future Business Strategy

With the wind-down of the Longs Business, ArcelorMittal South Africa will shift its focus to re-establishing itself as an innovative, export-driven force in steel-based industrialization. The company aims to play a pivotal role in South Africa, Sub-Saharan Africa, and other key geographies. This repositioning will involve building on the existing competitive supply chain and ensuring the continued growth and competitiveness of core downstream industries such as automotive, renewable energy, mining, and key construction and infrastructure projects.

Engaging with Government

ArcelorMittal South Africa has committed to engaging directly with the government throughout the process. This collaboration underscores the broader implications of the wind-down on the economy and employment in the region.

Looking Ahead

The challenges faced by ArcelorMittal South Africa reflect broader economic and structural issues in the South African steel industry. As the company navigates this difficult period, attention will turn to the impact on employees, communities, and the wider economy. The wind-down marks a significant chapter in the company’s history, prompting reflection on the broader economic landscape and the need for adaptive strategies to weather challenging times.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo