ArcelorMittal SA has laid the onus on South Africa to save key steel manufacturing facilities and has openly questioned the country’s industrial strategies. This development has been a hot topic, drawing considerable attention.
The company’s local division, ArcelorMittal South Africa Ltd. (AMSA), has been in discussions with government officials since early January, following its announcement of plans to shut down three units. These include two mills pivotal to South Africa’s auto, mining equipment, and steel-fabrication sectors. However, AMSA recently postponed these shutdowns for a month and aims to reach a conclusive decision by the end of February.
“We’re not willing to sustain any further financial losses from this business,” remarked CEO Kobus Verster from the firm’s base in Vanderbijlpark, located just south of Johannesburg. “We are engaged in ongoing discussions and actively focusing on resolving these challenges.”
Having transitioned from a state-run steel operation to being acquired by billionaire Lakshmi Mittal’s conglomerate in 2003, the company has now put pressure on the government to tackle issues like high energy and transport costs and inadequate protection against steel imports that, in their view, offer undue advantages to competitors.
Verster raised concerns about the economic landscape, stating, “Electricity and rail tariffs in South Africa are prohibitively expensive, the protective measures are insufficient, and the scrap discounts given to competitors aren’t fair. There’s a need to address these structural problems.”
Hints of a potential rights issue to improve financial stability led to a noticeable dip in AMSA’s stock, plummeting by as much as 17% to 93 cents, marking a low not seen since December 2023, before recovering slightly to 1 rand in the afternoon.
The threat of plant closures has prompted voices from dependent industries to call for intervention, emphasizing that these facilities also produce steel for construction—vital for their operations given that imports would be pricey and unreliable.
Verster highlighted the role of the Vereeniging and Newcastle mills in supporting over 100,000 indirect jobs. These mills produce between 350,000 and 400,000 tons of specialized steel. No other local manufacturers currently offer the same products, making them indispensable for automotive components and mining tools, both critical for South Africa’s ambitious 4.8 trillion-rand infrastructure initiative led by President Cyril Ramaphosa.
A core issue for ArcelorMittal is a policy that allows rivals, who substitute steel scrap for iron ore, to enjoy a 30% discount off the international raw material price.
The company’s challenges are compounded by their key shareholder, the government’s Industrial Development Corp. (IDC), which has also invested in many AMSA competitors. Currently, the IDC has granted AMSA an emergency loan of 380 million rand and is negotiating further financial support.
Acknowledging the IDC’s predicament, Verster commented, “It’s their issue to resolve—we’re not taking on additional financial risks.” The IDC holds roughly an 8% stake in AMSA but has not provided any comments.
Addressing rumors of a government bailout, Verster clarified that such reports are inaccurate and emphasized that AMSA hasn’t received any serious offers for its assets. “We can’t devote resources to propositions without funding or credible backing,” he said.
Once a thriving enterprise with a market value reaching 116 billion rand in 2008, AMSA’s current value has dwindled to just 1.2 billion rand, despite an annual revenue hovering around 40 billion rand. However, Verster sees potential in halting losses from non-profitable units that include one with over a century’s history.
Looking ahead, potential projects include a 1.5-million-ton electric-arc furnace, a 200-megawatt solar power plant to curb electricity costs, and the reopening of the idle Thabazimbi iron-ore mine by 2027. Additionally, the company is eyeing the production of green direct-reduced iron for export, utilizing hydrogen at the Saldanha plant by 2030.
“In the absence of the longs (a term describing certain steel products), the business is sound,” Verster noted optimistically.
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