ARCELORMITTAL South Africa has confirmed that the winding-down of its long steel product operations based in Newcastle, KwaZulu-Natal has been deferred. In a business update issued on 2 July, the company said that the “longs” business as it is known, has been operationally stable for the first half of the year.
The update elaborated in some detail on developments influencing the decision to maintain operations, starting by saying that in February 2024 the board and management had decided to defer the wind-down of the longs business enabling it to continue to operate for up to six months, to allow time to firstly, progress, conclude and secure identified short-term interventions, while also progressing the development of additional medium- and longer-term interventions focused on business sustainability.
The company said the longs business remains fully operational with all its facilities continuing to operate and ably servicing its markets and customers.
The company provided a summary of progress on the short-term initiatives as follows:
- Scrap advantage over iron ore: The export ban on steel scrap was not extended in December 2023 and has started a process to bring greater fairness and equity into the respective input cost structures found between integrated (such as ArcelorMittal South Africa) and scrap-based primary steel producers.
- Port and rail efficiency: Transnet performance to ArcelorMittal South Africa has improved. Negotiations with Transnet to guarantee port and rail service efficiency have progressed well and are at an advanced stage. The additional time invested in reaching a solution pertains to certain key matters that have not yet been agreed.
- Trade normalisation: With the oversupply in the global steel markets and commensurate trade actions taken by almost all major steel-producing countries, it is pleasing to see a renewed determination by South Africa to respond appropriately to ensure a level playing field for South African manufacturers, the company said. The benefits of this action were reports that a provisional safeguard duty of 9% is to be implemented on certain hot rolled steel products by the International Trade Administration Commission (ITAC). Applications for appropriate action on other steel products, including long products, are also being pursued.
- Working capital: The company said it has successfully obtained an additional 12-month, secured working capital facility of R1 billion to support ongoing initiatives which may be called upon to support continued operations.
- Discussions with organised labour: ArcelorMittal said it was disappointed that discussions with organised labour to reduce the cost structure of the longs business were unsuccessful, as “the trade unions rejected all reasonable efforts to find a solution” which would have assisted the competitiveness of the company and especially that of the longs business. This does not diminish the need to find structural solutions to address the cost competitiveness of that business, which would include a resolution of the high labour cost, the company said.
The short-term initiatives detailed above only partially address the structural sustainability of the longs business. However, progress is being made on the medium- and longer-term interventions. Work is advancing through various workstreams regarding local mineral beneficiation policies enabling iron ore beneficiation to supply regional demand; and advancing local supply for local demand in both key economic sectors and by State-owned Enterprises, the company said.
“The board and management are acutely mindful of the impact that the closure of the longs business would have on the beneficiation and manufacturing value chain, and the overall industrialisation in the country, notwithstanding the impact on jobs and the local economy, especially in KwaZulu Natal. The immediate impact on the Unemployment Insurance Fund alone could run into the billions.
“Consequently, despite progress being slower than anticipated and with some instances of disappointment, the board and management have decided that the longs business will continue to operate to allow an opportunity for the short, medium- and longer-term initiatives aimed at securing its sustainability, to be fully explored. Management is committed to working closely with all customers, suppliers, and stakeholders to ensure the sustainability of long steel products supply in the Southern African region,” the company said.
