The department of trade, industry & competition (DTIC) is pushing to increase steel exports to other African countries and root out customs fraud on imported steel in a bid to avoid the closure of ArcelorMittal South Africa’s (Amsa's) long-steel operations.
Amsa, South Africa’s primary steel producer, has been on its knees due to subdued steel demand locally, the ongoing logistics crisis, energy instability and cheap Chinese steel imports. The company said in November it had no option but to wind down its Newcastle and Vereeniging long-steel operations, a move that could lead to 3,500 jobs being lost.
However, the DTIC is confident it can avoid the closures. The DTIC told Business Times that since the announcement of the imminent closure of the long-steel operations, it has been in “extensive” discussions with Amsa to find ways to keep production in the country and avoid closure of the Newcastle factory.
Meetings were held in December and January with the company’s global leadership to find solutions, it said. “These included ways to address the expansion of demand for long products, including through exports to other African countries, combating customs fraud on imported steel and improved rollout of infrastructure in SA.”
The department said it had also held talks with rail and ports company Transnet to develop a partnership to improve logistics and consider ways of expanding the use of rail for the transportation of steel products.
“The discussions with the company have been constructive and the parties are following up on a number of areas. The DTIC remains positive that the closure can be avoided and to this end it is engaging the company and other stakeholders.”
The discussions with the company have been constructive and the parties are following up on a number of areas
An insider who spoke on condition of anonymity said the closure of the operations threatens to undermine the government’s industrialisation ambitions. “If the biggest producer in the country says we are closing that line, the government should say what will happen to our own infrastructure plans?”
The Newcastle and Vereeniging plants produce items including rebar, wire, rods and merchant bars used in the construction of roads, bridges and houses.
“The biggest question is: when these operations close, where are these products going to be manufactured? Does that mean if we give up the operations we are waiting for the Chinese to dump the products? Will Amsa import that product from Kazakhstan and other European markets which manufacture cheaper?”
However, the department said that as part of South Africa’s industrialisation plans the country seeks to retain and expand the production of long-steel products. “The factory in Newcastle is vital to the national infrastructure plan and is a major supplier to a number of downstream industrial producers.”
Amsa on Monday confirmed talks with stakeholders, including DTIC minister Ebrahim Patel, the Industrial Development Corporation, Transnet, suppliers and organised labour, who all requested it reconsider the closure and indicate what support it needs.
“Amsa reiterated that it did not need any preferential treatment or subsidies, rather it required the government to ensure that a level playing field exists for South Africa’s primary steel producers by addressing the structural constraints affecting the steel industry.”
The National Union of Metalworkers of South Africa (Numsa), which represents the majority of workers at the steel operations under threat of closure, confirmed that consultations in terms of section 189 were under way. Spokesperson Phakamile Hlubi said Numsa and Amsa are trying to minimise job cuts.
“Our goal as a trade union is to try and prevent any job losses, and that is what we have in mind,” Hlubi said.
Lucio Trentini, CEO of the Steel and Engineering Industries of Southern Africa, said the country’s metal and engineering sector, which is used as a measure of the overall economy’s performance, is living through 'unprecedented times' and facing a bleak year.
“The sector continues to face many risks and uncertainties such as the return of load-shedding, bottlenecks at Transnet’s sprawling logistics infrastructure, and policy uncertainty ahead of the 2024 national and provincial elections,” Trentini said.
“Confidence in South Africa is at a record low. And yet the sector’s recovery is crucial for the country’s economic prospects as it has the potential to boost productivity gains for the economy, exports, investment, innovation and job creation.”
David Fraser, executive chair at Peregrine Capital, said Amsa relies extensively on Transnet’s General Freight business, which has performed even worse than its “core corridors” of coal and iron ore.
“Moving both inputs and outputs from this plant must be a nightmare, causing production disruptions and an inability to run this operation at a ‘steady state’,” Fraser said.
He said Amsa’s major headwind is the poor level of steel demand in South Africa, which has been in constant decline for more than a decade, leading to the inability of its significant fixed cost base to be efficiently recovered over its production output.
“Given continued electricity constraints there is currently no reason for South African industrial firms to expand production capabilities until the electricity crisis has been overcome. Government has also consistently dropped its infrastructure spend as a percentage of GDP, which has resulted in a continued erosion of the country’s fixed capital base over the last decade,” Fraser said.
Amsa was also less optimistic about the recovery of the economy. It said the anticipated recovery of the steel market announced in July did not materialise due to dumping from China, weak demand at home and deteriorating business confidence as the year progressed.
“Elevated imports from China, where the majority of the steel industry is loss-making, is impacting not only South Africa significantly, with its low trade protection measures, but also the Africa overland and Sub-Saharan Africa markets in general.”
Amsa warned that it would report a loss for the year ended December 2023 and flagged a R2.1bn impairment against property, plant, equipment and other intangible assets of the long-steel business.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.