ArcelorMittal SA (Amsa) announced on Friday that it would proceed with the winding down of its long-steel business after its efforts to delay the process further fell on deaf ears, with thousands of employees set to lose their jobs in the coming months.
The wind-down, which will result in roughly 3,500 direct and indirect job losses while affecting an estimated 80,000 other jobs and small businesses, had been delayed for the past month as Amsa engaged the government and stakeholders on ways to avoid it, while fulfilling the business’s outstanding order book.
Despite engagement with the government over the past month, Amsa’s last-ditch effort to save the business came to naught, with the parties failing to find timely solutions needed to defer the closure.
As a result, Amsa told shareholders that it had “no option but to implement the final wind-down of the longs business”. The operation’s blast furnaces would begin to shut down in the first week of March, with the final wind-down into care and maintenance to be implemented in the second quarter.
The company said it was “disappointed that all our efforts over the past year have not translated into a sustainable solution”.
“We were unable to avoid what will be a significant negative impact on the economy ... [and] on the local community in Newcastle,” it said.
The group cited a failure by the government and stakeholders to address the key challenges underlying the closure of the business, including a policy framework that puts undue pressure on domestic steel producers.
In particular, the failure to remove SA’s scrap export tax and price preference system (PPS) means that a “substantial unfair advantage remains in place”, said Amsa.
The policy regulates the export of ferrous and nonferrous scrap by not allowing the exportation of scrap metal unless it has first been offered to domestic consumers at a discount to the international price at the time of sale.
A report by independent economic research consultancy Econometrix showed that about 7,500 jobs have been lost in the steel sector since 2014 after the introduction of the PPS the previous year.
Added to this was SA regulators allowing provisional safeguards on hot rolled coil to lapse, which would otherwise protect the domestic industry from intensified competition from imports.
“Despite our repeated submissions of evidence demonstrating the adverse impacts of current policies, we have received no formal communication from either the department of trade, industry and competition or National Treasury regarding the removal of the export tax or review of the PPS.
“This continued policy inaction, combined with deteriorating cost structures, has accelerated the decline in operating conditions beyond what was initially assessed earlier this year,” said Amsa.
Structural elements that led to the wind down also remain unaddressed despite extensive discussion, said Amsa, citing SA’s prohibitively expensive electricity and logistics costs.
The cost of power is set to increase by 12.7% from the start of April, while Transnet has also proposed increased prices, which would further elevate logistics costs “that are already uncompetitive by international standards”, said Amsa.
The group’s application for a negotiated pricing agreement was not supported by Eskom, while Transnet refused to negotiate improved tariffs, it said, adding that “the situation has deteriorated significantly since our discussions began”.
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