The inefficiencies at Transnet have increased costs exponentially for the steel industry, bringing the sector to its knees, said the CEO of SA’s biggest steel producer, ArcelorMittal SA (Amsa), which is on the verge of shedding 3,500 jobs.
Kobus Verster told Business Day that between 2019 and 2022, the company’s use of road transport to bring raw materials to its plants grew 210%, while production fell 20%.
“The situation has worsened in the current financial year. The impact of this is that we have to use road transport, which comes at a premium. And internally, we have to incur additional costs because our plants are designed with equipment to tip into conveyor systems to take to the ovens,” Verster said.
“Now when you bring in trucks, you have to bring in additional equipment to move the raw material around. That comes with additional costs.
“In October we had to stop a blast furnace in Newcastle for five weeks because we ran out of iron ore because Transnet could not deliver it. And to stop a blast furnace comes at an enormous cost.”
The net result of Transnet’s underperformance was that Amsa had to idle its blast furnaces for 33 days at Vanderbijlpark, the first time that this has happened for unplanned reasons.
In the 2022/23 financial year, Amsa has put the cost of Transnet’s inefficiencies to the business at R1.1bn, made up of R600m in negative impact on sales and R500m in lower efficiencies and operating costs.
Amsa relies heavily on rail monopoly Transnet to transport 91% of the iron ore and 100% of the coking coal consumed at its Newcastle and Vanderbijlpark plants.
A few months ago, the company suffered a R448m loss in the six months to end-June, a steep deterioration from the comparable period of 2022, when it reported a R3bn profit.
It said on Tuesday that it would embark on a section 189a process and the number of jobs affected will depend on the alternatives identified through the consultation process.
“However, at this time it is estimated that approximately 3,500 people (own and contract employees) may be affected. The company will continue to engage directly with government throughout this process,” it said in a statement.
“In the 2022 financial period, we had 10,270 full-time equivalent employees. These individuals were employed either permanently, as contractor employees or as hired labour.”
The company, whose share price is down more than 70% on the JSE this year, said it is likely to mothball its long steel units at Newcastle and Vereeniging in a move that will devastate the economies of both towns.
However, it excludes the coke batteries at Newcastle, which will remain operative.
Long steel products include rebar, wire rod, merchant bars, rails and sections.
KwaZulu-Natal MEC for economic development, tourism & environmental affairs Siboniso Duma said the news of the imminent wind-down of the vast majority of Amsa’s operations in Newcastle will be felt immediately. “One cannot underestimate the invaluable contribution made by Amsa to the local municipality’s 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,” Duma said.
“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.”
Duma’s Gauteng counterpart, Tasneem Motara, said while she is deeply concerned about the closure, it may be an opportune moment for new entrants and transformation of the steel sector to take place.
Other factors flagged by Amsa for its woes include low economic growth, which has curtailed demand. The company said the moribund economy of the past seven years has seen steel consumption decline 20%.
This has been worsened by limited infrastructure spending and project delays, Amsa said.
Scrap preferential pricing
The group, chaired by Bonang Mohale, said the introduction of a preferential pricing system for scrap, a 20% export duty and a ban on scrap exports have also hurt the industry.
Verster said: “The long products business for us is typically material that is used in the construction sector and mining sector. There is overcapacity in the country, demand is about 1.8-million tonnes and the supply is 4.5-million tonnes.
“All the competitors use scrap as the input material,
“So if you ban scrap exports and add to that a tax on scrap, the domestic price for scrap is going to be cheaper than international prices. This gives our competitors a cost advantage.”
Trade union Solidarity poured cold water on the reasons put forward by Amsa for the mooted retrenchments, particularly the dearth of infrastructure spend and the energy and logistics crises.
“These obstacles are nothing new or unfamiliar to Solidarity or other parties that are involved in Amsa ... it is also clear how the government’s mismanagement of state enterprises such as Eskom and Transnet ... are claiming victims,” the union said.
Update: November 28 2023
This story has been updated with new information.
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