Steel major ArcelorMittal SA (Amsa) will proceed with the winding down of its long steel business, putting about 3,500 direct and indirect jobs at risk across Gauteng, Mpumalanga and KwaZulu-Natal.
The move is particularly concerning for residents of the KwaZulu-Natal town of Newcastle, where Amsa’s long steel facility plays a key role in the local economy and job market. Newcastle alone accounted for 34% (more than R10bn) of Amsa’s procurement in 2023.
Having been under threat of closure since late 2023, the Newcastle plant’s tenuous operations will come to an end in late January, with the winding down of the remaining production processes to be completed in the first quarter of 2025.
In the group’s latest annual report, Amsa warned that winding down its long steel business would have “profound social impacts” — “doing so would have a profound impact on suppliers, communities and local governments in KwaZulu-Natal and Mpumalanga,” it said.
The winding down would affect all of Amsa’s long steel plants, including the Newcastle and Vereeniging plants and the rail and structures subsidiary, Amras.
Outside the potential job loss, enterprises that supply the affected works would also be negatively affected, it warned.
Long steel products include rebar, wire rods, merchant bars, rails and sections.
While Newcastle’s coke-making operations will continue, these too will be scaled back to reflect reduced demand.
The news saw flocks of JSE investors dumping their Amsa holdings on Monday, with the group’s share price plummeting by 25% on the day, wiping about R400m of shareholder equity.
Amsa, Africa’s largest steel producer, last year cited the headwinds — from deteriorating global and local steel markets to the high cost of electricity and logistics — its long steel business faced.
Despite having sought policy support to address these constraints, the group said the package of initiatives it sought “has not materialised to a level that will change the fundamentals of the structural problems that the company has been experiencing”.
“The SA steel industry is facing its greatest sustained challenge since the events of the financial crisis of 2008-09.”
Added to structural constraints were surging low-cost steel imports, particularly from China, whose record exports have kept international steel prices untenably low.
While anticipated Chinese stimulus measures drove a recovery in international steel prices in September, lack of clarity on the specifics of these stimulus measures saw Chinese hot rolled coil and rebar prices fall back below $500 per tonne in the final quarter of last year.
“Initial signs of recovery in international steel prices, following announced Chinese stimulus measures, were short-lived,” the company said.
In November, SA’s crude steel production was at 4.42-million tonnes, down 2.3% year on year.
This year, production is expected to be about 30% lower than that of 2018, putting SA behind African competitors Egypt and Algeria.
The SA steel industry is facing its greatest sustained challenge since the events of the financial crisis of 2008/09.
The pressure on SA’s steel industry saw the department of trade, industry & competition meeting stakeholders in the steel and engineering value chain in November, when “it was agreed that urgent, radical and ambitious interventions were needed to address the decline,” Amsa said.
However, Amsa CEO Kobus Verster said the group was disappointed that its efforts over the past year, which sought to “level the playing field against international and local competitors”, failed to translate into a sustainable solution.
“The issues raised outlined those factors that could have, and still can, firmly address the structural problems within the SA steel industry, especially for our longs business, but also within the company, the SA steel industry and value chain,” Verster said.
“We had hoped that matters would not come to this conclusion, at a time when our country can ill afford job losses and the further erosion of industrial capacity,” he said.
Amsa said any further delay in winding down could affect the sustainability of its overall business in the longer term, adding that the company had a “fiduciary and legal duty to ensure the overall business remains sustainable in the longer term”.
The group assured shareholders that it “remains confident that the remaining business can be successfully restructured to be competitive, sustainable and profitable”.
As Amsa proceeds with winding down, the long steel business will now be placed into care and maintenance, subject to a consultation process. The company expects to cumulatively recognise asset impairment, wind down and severance charges of about R2.7bn.
Driven by lower prices and the challenges in its long steel business, Amsa expects revenue for last year to decline by more than 5% year on year.
The group advised that its headline loss per share for the year to the end of December would widen to a range of R4.06-R4.41 from a loss of R1.70 per share a year ago.
With Kabelo Khumalo
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