When Henry Bessemer began large-scale steel production you can bet the local blacksmiths said he was unfairly stealing their market share. Almost 200 years later ArcelorMittal SA (Amsa) has adopted a similar approach, blaming its shutdown at Newcastle largely on the growth of cheaper, greener scrap-based steel production.
However, undermining its competitors would in effect raise costs for local customers. It makes more sense to work on raising productivity at the remaining Amsa plants, which could help fill the gap left by Newcastle.
Big steel is always a challenge for democracies. Historically, the sector was dominated by a few companies with huge mills in secondary towns. They could lobby at the highest levels of government, mobilising their communities and workers and shaping media coverage.
Over the past year Amsa has aggressively pursued this model. In contrast, its competitors and customers are less well organised and capacitated. Most are relatively small businesses, spread across a range of industries and towns. Historically they have not been organised to pressure the government, to flood the media with opinion pieces and to encourage support from unions and municipalities.
But the disproportion in political power and publicity does not reflect the real needs of society and the economy. Amsa’s long steel plant at Newcastle employs 1,500 permanent workers out of its total workforce of 6,500. The competing mini mills, which only produce long steel, together have more than 5,000 workers.
The disproportion is even larger if we take downstream users into account. Manufacturers of structural inputs for construction, hand tools and other basic steel products, cars and machinery, employ about 350,000 workers. Mining and construction together account for about 1.5-million more.
Closing down the competition will not address Amsa’s long-term decline. From 2011-23 it made losses in eight years, while its unit cost per tonne of steel climbed 55% above inflation. Since the early 2000s its output has fallen two thirds by weight and its exports have plummeted.
In flat steel, where Amsa does not face local competition, imports now meet 30% of SA needs. In long steel, where scrap-based mini mills are its main competitors, its market share has dropped below 60%, with imports at just 5% of local demand.
Critically, Amsa has lost advantages that historically fuelled big SA steel. From the 1910s local steel production thrived thanks to SA’s low-cost, high-quality iron ore, electricity and rail freight, with strong domestic demand from mining, construction and manufacturing. However, in the early 2000s the global steel giant ArcelorMittal acquired what was then Iscor and gave up its local iron ore mines.
That means Amsa now has to pay some approximation of international prices for iron ore. As a result, it suffered a severe cost squeeze when world iron ore and energy prices spiked in the early 2020s. At the same time the travails at Eskom and Transnet escalated its costs. Meanwhile, steel demand in SA has been almost flat since 1976 and from the early 2000s Amsa lost export markets in Europe and Asia.
In contrast, in the early 2010s the government initiated a strategy to reduce input costs for the mini mills. To that end it required SA scrap producers to supply local users at well below world prices. In response the existing mini mills upgraded their capacity while some new producers emerged. SA is now a world-class, low-cost producer of long steel, lowering prices for SA users as well as expanding exports.
Faced with these realities Amsa has not lobbied for a strategy to boost its own competitiveness, except for (unsuccessful) demands for huge cuts in its payments to Transnet and Eskom. Instead, for decades it has demanded protection from both local producers and imports.
That approach necessarily raises prices for downstream users. Ultimately though, economic development requires more advanced, cleaner, competitive production, not the preservation of existing producers at any cost.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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