The Industrial Development Corporation (IDC), one of the minority shareholders at ArcelorMittal South Africa (Amsa), says it is talking to other stakeholders in a bid to intervene as the company prepares to shut its long steel businesses in Newcastle and Vereeniging which employ 3,500 people.
The IDC, which owns 6.4% of Amsa, said this week it was engaging stakeholders to explore potential solutions in line with its commitment to expand South Africa’s steel industry.
IDC spokesperson Tshepo Ramodibe said the corporation was concerned about potential job losses and their socioeconomic effect on the two towns. “In the medium to longer term, the corporation believes all stakeholders should be focusing on the sustainability and competitiveness of the steel industry, and positioning it to capitalise on emerging opportunities from infrastructure projects, the rollout of electricity transmission and the refurbishment of the rail sector.”
He said the IDC had given Amsa a R1bn injection in June last year to support the long steel business after it first announced the potential closure of its Newcastle facility in November 2023. He said this underscored the IDC’s commitment to the business.
The term “long steel” refers to items such as beams, reinforcement bars and rails.
The IDC believes all stakeholders should be focusing on the sustainability and competitiveness of the steel industry.
— Tshepo Ramodibe, IDC spokesperson
He said the business was capital intensive with high costs. Operations had been affected by changes in the global and domestic steel industries which were transitioning from blast furnace technologies to electric arc furnaces to decarbonise and improve cost-effectiveness.
“As a result, several global steel companies, including the ArcelorMittal Group, have reduced production from blast furnaces in recent years. Additionally, South Africa is experiencing an estimated overcapacity of 1-million tonnes a year in long steel production, creating difficulties for producers like Amsa with inherently higher costs as they compete in a challenging market,” he said.
This week Amsa said it was mothballing the Newcastle and Vereeniging operations at month end because of sustained weak economic growth, rising energy and logistics costs and the effects of cheap Chinese imports.
Amsa delayed the inevitable after it first flagged its intention to close the long steel business in November 2023 and deferred the decision for six months in February 2024. The decision was taken despite talks with stakeholders to find solutions.
A source close to the company said while policy decisions were needed, Amsa could have waited for interventions by stakeholders to take effect before pulling the plug. “I think they moved in a way that embarrasses the government after all these efforts,” he said.
“Maybe their feeling was that the government was not moving fast enough, and they could not continue to have such losses on their balance sheet. Cash injections are like plasters — [instead] you need certain policy decisions to kick in first so any cash injection will be into a receptive environment.”
The government, led by the department of trade, industry and competition (dtic) and other departments including the Presidency, has been talking to Amsa on its closure plans but no solutions were forthcoming.
This week dtic spokesperson Yamkela Fanisi said the department was committed to working with Amsa to find a lasting solution after minister Parks Tau formed a technical working group which had met well into December. The working group included the energy and transport department and Eskom.
“It has always been and continues to be the intention of government to continue these engagements until a workable solution to Amsa and the steel industry's problems is reached,” said Fanisi.
Amsa CEO Kobus Verster said the government was willing to listen, but it was not able to take decisions that would help the group. He said the government could have done more.
“That is my view, especially in an environment where your steel consumption is 30% lower than it was eight years ago. Where your industry is in distress, you need specific interventions by the government to ensure that when the economy returns, your industry and manufacturing capability has been retained,” he said.
Verster said Amsa would continue to seek import duty protection in the face of rising Chinese imports similar to those imposed by Europe, the US, Canada, Brazil and even countries in Southeast Asia. “To the extent we do not continue to demand similar protection, we will be exposed as being ready to be exploited,” he said.
The PIC said it was an insignificant minority shareholder in Amsa and “the boards of investee companies are responsible to hold management accountable for their performance”.
A source close to the steel industry told Business Times on Friday that Verster was not convinced Amsa had a solid enough strategy to turn the ship around, blaming the company's demise on poor management. “[Verster] is really skating on thin ice. I don't think he will survive three months. Amsa is suffering because of this guy,” he said.
“We think there is a management issue... there is no strategy to turn this around but rather to close operations to the disadvantage of the economy — basically giving the Chinese more leverage to sell their stuff. The economy is bad but you have to have long steel companies. Amsa’s only strategy is to say to the government give us more tariffs,” he said.
Verster was CEO at JSE-listed construction company Aveng between 2014 and 2017.
Amsa's share price has declined 16% in the past year as the steel industry grappled with low prices caused by Chinese oversupply and weak global manufacturing. It issued a profit warning, saying losses would increase for the year ended December 31 2024 as a result of myriad problems in the steel industry, including lower prices and record Chinese exports.
Ramodibe said as a minority shareholder, the IDC engaged with Amsa on performance matters through “proper governance channels” and did not comment on speculation.
“We understand the challenges facing the sector and Amsa and hope the ongoing discussions yield viable solutions,” he said.
Likamva Resources, a black-owned industrial consortium with a stake in Amsa, referred questions to Amsa chair Bonang Mohale.
Mohale said the board was unaware of any concerns by shareholders in terms of the leadership of Amsa and expressed confidence in Verster and his executive team. “The CEO is focusing his attention on the responsible wind down of the long steel business and configuring the business for a profitable and sustainable future. He is entirely dedicated to this work with his executive at the moment,” he said.
The PIC said it was an insignificant minority shareholder in Amsa and “the boards of investee companies are responsible to hold management accountable for their performance”.
Numsa general secretary Irvin Jim said: “The union will fight these proposed retrenchments because it is our duty to do everything possible to save jobs. However, government — led by the dtic and the entire economic cluster — must be involved as [this] is related to Eskom and Transnet.
“In our view, there should be no holy cows in this debate, as it is about protecting the current capacity for manufacturing, and this is crucial to drive the most needed manufacturing and industrialisation of our country so we can protect existing jobs, create desperately needed new jobs and stimulate economic growth.”
Elias Monage, president of the Steel and Engineering Industries Federation of Southern Africa, said Amsa’s year-long plea for help from the government had come to nothing. “The fact is that ArcelorMittal never had a prayer — sadly we’ve seen this play out before with the closure and mothballing of Highveld Steel and Saldanha, respectively, all at the feet of a dithering government too slow to react and offering too little, too late,” he said.
• This article was updated with a new headline to reflect the IDC's position
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