ARCELORMITTAL SOUTH AFRICA announced on 6 January that it is winding down the company’s ‘longs’ business at the Newcastle and Vereeniging works, as well as the company’s rail and structural subsidiary. Steel production is anticipated to cease by late January 2025, with the wind down of the remaining production processes completed in Q1 2025. Newcastle’s coke-making operations will continue, though scaled back to reflect reduced demand.
The announcement does not come as a surprise considering the challenges faced by this part of the business which has been living on borrowed time and hampering the company’s profitability. In July 2024 the company said that it had decided in February to defer the wind down of the longs business for up to six months, to allow time to progress, conclude and secure identified short-term interventions, while progressing the development of additional medium- and longer-term interventions focused on business sustainability.
Although the July 2024 statement was upbeat regarding progress made towards resolving some of the issues threatening the longs business, the company indicated that there was still a way to go. In addition to the global trading environment, ArcelorMittal South Africa (AMSA) highlighted local factors within policymakers’ and partners’ control requiring action. Among these were policies around scrap metal exports, efficient service from Transnet ports and rail and the cost structure of labour in the longs business.
Asked whether he thought the government could have done more to prevent the winding down decision, AMSA CEO Kobus Verster said that the government was willing to listen, [but] not really able to make decisions.
The Newcastle steel works goes back to 1969 when the then government-owned Iscor decided to erect its third fully integrated facility at the town. Newcastle was chosen to decentralise industry away from the Witwatersrand and to promote industrial development in KwaZulu-Natal.
KwaZulu-Natal’s MEC for Economic Development, Tourism and Environmental Affairs (EDTEA), Musa Zondi, called for urgent intervention in response to AMSA’s announcement.
“The closure of AMSA’s Newcastle and Vereeniging operations could devastate the local economy, leaving thousands without work and negatively impacting regional suppliers. Furthermore, if this is not resolved, it will have a ripple effect on the broader economy of KwaZulu-Natal, threatening economic stability and growth in the province. We urge the minister to explore all possible solutions to prevent this closure, including further dialogue with AMSA and stakeholders,” said Zondi.
According to EDTEA, AMSA requested the following from government:
- A 15% reduction in Eskom tariffs and relief from loadshedding.
- Reliable and cost-effective steel transportation from Transnet.
- Addressing fair competition and business practices.
- Reviewing industry policies such as the Scrap Price Preference System (PPS) and Export Scrap Tax.
Zondi acknowledged the establishment of a national task team, chaired by Tebogo Makube and the efforts led by Sisanda Mtwazi to facilitate dialogue between AMSA and government.
The Department of Trade, Industry and Competition (DTIC) said that during 2024, AMSA had reached out to various government departments and state-owned entities with requests for different concessions for its business. It said the minister of Trade, Industry and Competition, Parks Tau set up a technical working group made up of the relevant stakeholders including the DTIC and AMSA, the departments of Electricity and Energy, Transport, Eskom, Transnet and private sector stakeholders.
“It has always been, and continues to be the intention of government to continue these engagements until a workable resolution to the problems faced by AMSA and the steel industry is reached. The steel industry is critical in the reconstruction and recovery plan for the South African economy, particularly, the manufacturing, mining, construction, engineering, and transportation sectors, which are at the centre of the industrialisation, localisation and beneficiation programmes of government,” the DTIC said.
The National Union of Metalworkers of SA (Numsa) general secretary Irvin Jim told Newzroom Afrika that the closures are “a catastrophe that we cannot accept” and said the government should come up with solutions to stop the closures to avoid further job losses in the country.
Elias Monage, SEIFSA Federation president said The Steel Master Plan (SMP) was meant to deliver a comprehensive industrial policy framework, where a total, inclusive, industry perspective would be taken and complementarities across the value chain enhanced. “Sadly, what we are witnessing is the opposite, wherein policy is implemented in a fragmented manner, with a short-term view and with pockets of industry being pit against one another.”
In a statement, Monage said, “The fact of the matter 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. For South Africa’s economy, ArcelorMittal’s decision means that there will be fewer players in the country producing long steel products such as fencing material, reinforcing bars, beams, rails and profiles that are used in the construction, mining and manufacturing sectors.”
Sustained challenges
AMSA said in the January statement that the decision to wind down the longs business comes after sustained challenges, including weak economic growth, high logistics and energy costs, and an influx of low-cost steel imports, particularly from China. AMSA wants action on the Price Preference System (PPS) and Export Scrap tax. The PPS forces scrap metal generators and recyclers to sell their scrap metal at a discount to local consumers. AMSA says these policies effectively subsidise scrap-based steelmaking operations to the detriment of its Newcastle works which beneficiates South African-sourced raw materials.
AMSA said that, despite extensive consultations with government and stakeholders to find viable solutions to sustain the longs business, progress was insufficient to avert the wind down.
The persistent overcapacity in the global and local markets, and unsustainably low international steel prices have further exacerbated the business’ structural difficulties, the company said. Asset utilisation in the longs business reached only 50% as weak market conditions necessitated the operation of its blast furnace at the lowest level technically and responsibly possible.
Verster said: “It is with deep regret that we must take this difficult decision. Over the past year, our employees and dedicated management team have shown remarkable commitment and resilience in the face of serious uncertainty. Unfortunately, despite everyone’s best efforts, including significant engagement with stakeholders, the structural challenges in the longs business were not resolved. While this outcome is deeply disappointing, especially given the economic challenges facing South Africa, we remain focused on securing a sustainable future for the remaining operations.”
AMSA said it is envisaged that approximately 3,500 direct and indirect jobs will be affected and that the broader economic effect on induced jobs is expected to be significantly higher, especially in the Newcastle region. It said the company would be commencing with a formal Section 189(3) labour consultation process shortly, and that it remains committed to a responsible process to minimise the impact on employees and suppliers.