Last-ditch efforts are under way to save troubled steelmaker ArcelorMittal South Africa (Amsa). Business Times understands that the company is seeking a R3.1bn rescue package to save its long-steel plants in Vereeniging and Newcastle where 3,500 jobs are on the line.
Amsa, in talks with the Industrial Development Corporation (IDC) and the department of trade, industry & competition (DTIC), has requested a cash injection from the IDC, sources close to the talks said.
They said that as part of a rescue, Amsa is trying to set conditions: it wants relaxation of competition laws — so it can merge with smaller steel mills — and a cut in its Eskom bill.
Tebogo Makube, acting deputy director-general of industrial development at the DTIC, said the department believed Amsa’s long-steel business could still be saved and the government was looking at long-term solutions to avert job losses.
He said the DTIC would also explore options to retain the capacity to manufacture long-steel products in South Africa if Amsa could not continue to operate this business.
“We will then look at other options, I cannot divulge the nature of the options at this stage. We have agreed as parties that we will respect each other; it is at a very sensitive stage and the information is still confidential,” he said.
“We met even this week with the company. For the government, the issue is not about the commercial aspect, it is more about the public interest consideration. The jobs, the capacity in the country to manufacture the products, because if we don’t manufacture that will have other economic consequences in terms of the balance of payments and trade balance issues.”
Makube said the primary focus was to stabilise the steelmaking industry.
“At the right time a formal announcement will be made as to other options ... That will include ownership models, but now I can’t give more details as we are dealing with a listed company, and we have to respect the JSE rules,” he said.
Makube said the government had made available R380m to Amsa to keep the plant running. He said indications are that the Newcastle plant could operate for another 12 months with additional funding.
“There is a need for additional funding to keep Newcastle running while we find lasting solutions for the plant and Amsa broadly. What is key for me is not the R3bn.”
He said Amsa had listed electricity and transport as its biggest costs. "[Newcastle] is far from the markets, it is far from Johannesburg; for export, the products have to be taken to Richards Bay and there are rail costs to be considered.”
That is why the government is saying, ‘Let us look at the options,’ because the impact will be dire. The auto industry will be impacted by the closure of that longs business. There will be upstream and downstream impacts
— Tebogo Makube, DTIC
It is understood that to keep the long-steel business afloat, Amsa has applied to the Unemployment Insurance Fund (UIF) to partially cover the salaries of the 3,500 affected workers, which would cost around R2bn.
A company source said Amsa would likely get the money from the temporary employee relief scheme (Ters), a benefit for employees in companies facing distress.
“The Ters was implemented during Covid, and this time the package has been pushed to help the Newcastle plant,” the source said, but added: “The money will be finished in the next six months, what happens then? You need a different strategy for that business, R2bn will do nothing, it will not save the jobs. Six months from now we will be saying ‘What will we do now?’ Come the end of the year we will retrench again.”
An Amsa spokesperson said the company was not in a position to comment but would provide updates as they became available.
Tshepo Ramodibe, head of corporate affairs at the IDC — which has a 6.4% stake in Amsa — said: “We have supported the government’s technical team and provided Amsa with working capital facilities to ensure its short-term sustainability while seeking long-term solutions. The IDC remains committed to supporting viable solutions for Amsa during these difficult times. Beyond Amsa, our focus is on finding sustainable solutions for the steel industry, which is crucial for our country.”
The IDC injected R1.2bn as working capital to keep Amsa afloat in February. The fund has a R14bn exposure to smaller mills that compete with Amsa.
It is understood Amsa is mulling a consolidation spree to absorb the mini-mills, but that would depend on the competition authorities.
“The competition commission cannot fold its arms and see the creation of a dominant player,” said an insider privy to discussions.
Another source described Amsa’s attempt to set conditions as “audacious”.
“You cannot be asking for money and dictating the terms on which you should be given this money. You are asking for help but are saying ‘do the following for me and do that for me’.”
An industry player, who asked not to be named, criticised Amsa’s attempt to negotiate lower electricity tariffs with Eskom.
“Amsa’s model is difficult to understand. Wherever they operate in Europe, they rely on concessions from host governments. South Africa has energy challenges; so imagine how a Macsteel would feel when they realise the biggest steel producer in the country pays very low [electricity] tariffs.”
Amsa said in January it would wind down its long-steel plants in Newcastle and Vereeniging, blaming cheap imports, especially from China. It has also cited weaknesses at Transnet and subsidies to smaller steelmakers as having contributed to the decline of its long-steel business.
Asked about the possibility of the UIF stepping in to help with wages, Makube said: “Since Covid, the government has agreed that if there is an indication to lay off workers you must find ways to assist companies through subsidies ... That is why Ters money is being considered. We are looking at various options to avert the disaster that may happen to Newcastle.
“The president has asked that we come in and try to assist the company. It is publicly owned, it is not state-owned, but there is a public-interest consideration.”
But he said it would be difficult to persuade Eskom to cut tariffs for Amsa as other high-intensity energy users such as chrome smelters were in the same boat.
“It’s not only Amsa that is having challenges when it comes to the cost of electricity. We have been approached by other sectors such as chrome smelters; they are also under serious challenges.
“How do we resolve this? Are we supposed to give them money as well because they are under serious challenges? The government does not have the money.”
Makube said management and operational issues at Amsa had to be addressed within the company.
“Money is one element. If you go back and look at performance, it has made losses for a long time. In a decade it has made losses for seven years and it is publicly owned, but its impact on the economy is huge,” he said.
“That is why the government is saying, ‘Let us look at the options,’ because the impact will be dire. The auto industry will be impacted by the closure of that longs business. There will be upstream and downstream impacts.
“The plant uses iron ore; if it closes down it means those who are supplying iron ore will also have to retrench if they do not find alternative markets.”
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