Eleven years ago, steelmaker ArcelorMittal SA was one of the 10 largest companies listed on the JSE - bigger than Absa and Nedbank combined.
But two recessions since then and feeble economic growth in between have put the company's back against the wall.
Add to that cheap imports from other steel-producing nations and sharp increases in energy costs, and it becomes clear why more than R100bn of shareholder value has been destroyed and the company has a market capitalisation of only about R3bn today.
ArcelorMittal now wants to rejig the business in a big way.
"A large-scale restructuring is contemplated, and it is anticipated that in excess of 2,000 positions may be affected," the company said this week.
ArcelorMittal SA’s market
capitalisation 11 years ago. It
is now R3bn
— R100bn
That is nearly a quarter of the steelmaker's workforce. Though the true number of jobs cut will only be determined in consultations with trade unions and employees, it sends a clear signal that the company is slimming down to stem losses.
ArcelorMittal SA flagged a headline loss of about R600m for the half-year to end-June in the same announcement.
"Certain costs that are not within the company's control, such as high electricity, rail, port, and primary raw material costs, have contributed to these challenges," the company said.
And production costs are not the only problem. Demand in SA has been very weak as the construction sector struggles and large, state-sponsored infrastructure projects have not taken off as envisaged in the National Development Plan. Mining companies, which are big local steel users, have also not been flush with cash as they face some of the same rises in input costs.
"I don't touch ArcelorMittal SA for a simple reason," said Gryphon Asset Management portfolio manager Casparus Treurnicht. "Electricity and other . costs are driving its business model into the ground."
Founded as Iscor in 1928, the steel producer was the first big step in establishing a manufacturing sector in SA. Over the years the state-owned company built plants in Pretoria, Vanderbijlpark, Newcastle and most recently Saldanha Bay.
In the early 2000s Iscor was listed on the JSE and first taken over by Ispat and later by India's Mittal Steel. Mittal merged with Europe-based Arcelor to form ArcelorMittal in 2006 and to become the world's largest steelmaker.
But over the past two decades China has expanded its steel production substantially and has been able to export cheaply to other markets, including SA.
ArcelorMittal SA spearheaded a campaign to have steel tariffs slapped on imports and though it made some headway, it has still found the going tough.
Trade union Solidarity now warns that the possible retrenchments at ArcelorMittal SA may be the first of many.
"All stakeholders should urgently intervene; otherwise, more and more companies will have to face retrenchments," said Solidarity's deputy general secretary, Marius Croucamp.
Treurnicht said: "I don't see this company surviving and I am actually surprised that it is still around."
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