Struggling steel producer ArcelorMittal SA (Amsa) bought electricity from Eskom to the tune of R3.2bn in the 2024 financial year — more than half of what it paid its nearly 9,000 workforce — with the runaway energy costs draining the group’s coffers.
Amsa notes in its annual report published on Wednesday, that apart from the high electricity costs, Transnet Freight Rail’s poor performance resulted in considerable lost production and sales, saying over the past three years rail tariff increases outstripped inflation.
“This year, we spent R3.2bn on buying electricity from the state utility Eskom, up 14% from 2023. Since 2007, electricity tariffs have increased by more than 800%.”
The group’s electricity costs amount to about two-thirds of the R4.96bn it spent on salaries and benefits in the year under review, highlighting soaring electricity bills’ burden on the company, industry and broader economy.
Amsa’s electricity bill is set to rise further in the 2025 financial year after energy regulator Nersa approved a 12.7% tariff increase for Eskom for the 2025/26 financial year.
The steel producer, which reported a R5bn loss in the 2024 financial year, is focused on turning around the fortunes of its long steel business. It was on the verge of being wound down before the government and the Industrial Development Corporation (IDC) came to its rescue, saving 3,500 jobs.
The IDC provided Amsa’s long steel unit with a nearly R1.7bn facility.
This, with the government’s undertaking to pick up the wage bill of the unit to the tune of R417m, saw Amsa defer the closure of its plants in Newcastle, Vereeniging and Mpumalanga.
One of the conditions of the government’s support is that Amsa participate in the Productivity SA turnaround and recovery programme.
Amsa said in the annual report duties on the export of scrap steel and a so-called pricing preference system (PPS) served to keep scrap prices artificially low.
“These mechanisms favour electric arc furnace makers of, in particular, long steel, giving them an unfair advantage over integrated steelmakers such as ourselves,” the company said.
“In 2024, we operated at a disadvantage relative to these producers (many of which are backed by public funding of about R8.5bn a year in subsidies). This reality was largely responsible for putting our longs business at risk.”
Amsa said that in the year under review, the performance of the longs business translated into an operational earnings before interest, tax, depreciation and amortisation (ebitda) drain of R1.6bn, up from a R655m loss in the prior year.
The company said the ArcelorMittal group continued to support it with its shareholder loan increasing from R3.7bn to just more than R5bn.
Amsa chair Bonang Mohale said in his letter to shareholders SA’s steel sector was on its knees.
“Notably, as is by now well known, we experienced regulations that should have been more responsive to realities on the ground; in particular, the lack of action on the burning issue of artificially low scrap pricing,” Mohale said.
“Such is the prevailing scrap environment that it had the effect of unfairly subsidising our longs business’ competitors by more than R1,000 a tonne, an unfair advantage that is almost certainly without parallel anywhere else in the world.”
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