Business Maverick

BLEAK OUTLOOK

ArcelorMittal sees no way to avoid the closure of its steel operations in SA, and looming job losses

ArcelorMittal sees no way to avoid the closure of its steel operations in SA, and looming job losses
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

The closure of ArcelorMittal South Africa operations in Newcastle and Vereeniging, starting from January 2024, is set to put 3,500 jobs on the line. It is an indictment on President Cyril Ramaphosa’s reform agenda, which has arguably failed to deliver on promises, set four years ago, to remedy the electricity and logistics crises.

ArcelorMittal South Africa has poured cold water on the government’s efforts and ability to reform the economy, with Africa’s largest steelmaker saying it does not see an immediate fix for the electricity and logistics crises.

“The problems around Eskom and Transnet will unlikely change in the near term. We also do not see a change in the economic dynamics of South Africa,” said Kobus Verster, the CEO of ArcelorMittal South Africa, on Wednesday during a briefing with journalists.

ArcelorMittal has taken a dim view of South Africa’s economy and the government’s reform agenda because its steel operations in the country are taking a big financial hit. The company swung from a R3-billion profit in the first half of 2022 to a R448-million loss during the same period this year. The toll is so enormous that ArcelorMittal has announced the closure of its operations in Newcastle and Vereeniging, starting from January 2024, which will put 3,500 jobs on the line.

It is a damning indictment of President Cyril Ramaphosa’s reform agenda, which has arguably failed to deliver on promises, set four years ago, to turn around the electricity and logistics crises. The lights are now off more than ever and the state-owned transport group Transnet cannot fulfil its most basic function of moving trains and delivering goods efficiently through its ports.

Beyond ArcelorMittal, other companies are also planning to cut jobs. Several mining companies, including Glencore, Seriti, Sibanye-Stillwater and Impala Platinum have either planned to or have started retrenchment talks with workers and their trade unions to potentially cut up to 10,000 jobs by January.

Transnet, Eskom problems

The dysfunction and unreliability of Transnet’s rail network have meant that ArcelorMittal is transporting raw materials to its factories by road, which is more expensive.

ArcelorMittal relies heavily on Transnet Freight Rail to transport 91% of the iron ore and 100% of the coking coal consumed at its Newcastle and Vanderbijlpark factories to produce steel. However, the shift to road as a direct result of Transnet inefficiencies has cost ArcelorMittal losses amounting to more than R1-billion just in 2022, linked to an increase in operating costs and lost sales.

Then there is the negative impact of Eskom blackouts, which harms ArcelorMittal’s steel production process. Verster said higher stages of Eskom blackouts in recent days, with the country being placed on Stage 6, meant that its factory in Vanderbijlpark was asked by the power utility to embrace load curtailment for eight hours a day over the past three days. Load curtailment happens when Eskom asks big businesses and industries to reduce the use of electricity when the power system is under pressure.

Verster said the operating environment for businesses had become more difficult and the company was now forced to close its operations in Newcastle and Vereeniging, as well as the ArcelorMittal Rail and Structural operations in Mpumalanga, which rely on intermediate products currently produced at Newcastle.

These operations will begin winding down in January, when they are scheduled to stop receiving steel-making materials, such as iron ore. The winding-down process is set to take between five and six months, said Verster, adding that it might take longer as ArcelorMittal still had to negotiate with affected communities, workers, trade unions, Transnet and the government.

He stressed that the closure of these operations was the last resort, after years of aggressively cutting costs at the company, which turned out to be futile as structural and economic problems in South Africa became overwhelming.

In addition to Eskom and Transnet problems, ArcelorMittal has been battling with a 20% decline over the past seven years in the demand for long steel products (which includes wire, rods, railway rails and bars). Underscoring the decline is that South Africa has a crude steel manufacturing capacity of between eight million and nine million tonnes. However, steel demand stood at only 4.2 million tonnes.

The government is not embarking on large-scale infrastructure projects, which would pave the way for ArcelorMittal steel products to be in demand.

Government policy blunders

What also pushed ArcelorMittal to shut its operations were policy blunders by the Department of Trade, Industry and Competition (DTIC). It introduced a new preferential pricing system for scrap, a 20% export duty, and a ban on scrap exports that have given steel production via electric arc furnaces an “artificial” competitive advantage over steel manufacturers that use iron ore to produce steel. This means scrap metal traders who recycle steel are gaining an advantage over ArcelorMittal’s more intense operations such as Newcastle, which consumes heavy raw materials such as iron ore.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) — an industry body whose members include 1,300 companies, employing around 170,000 workers — has called for Ramaphosa to urgently intervene to correct the policy as “it seems that the DTIC seemingly does not have the capacity, nor the grasp of the broader implications of these developments.  

“The matter is now beyond urgent and we urge the President and key ministers in the Economic Cluster to treat it as such, if we are to avoid a socioeconomic catastrophe of gigantic proportions in the metals and engineering industry which will reverberate throughout the economy and the continent, impacting the auto, motor, construction and mining subsectors of the economy and all who work in [them].

“The reconstruction and recovery of the South African economy and more specifically the metals and engineering industry must be looked at in the wider context of reindustrialising critical sectors, along with all the other challenges facing the economy, from energy and logistics to the water infrastructure and crime,” Seifsa said in a statement.

At this point, ArcelorMittal cannot be convinced to reconsider the shutdown of its operations. Verster said he remained open to talks with the government. However, he is pessimistic about the ability of the government to intervene to fix problems weighing on the steel industry.

“We are clear about the problems. They are complex and will be difficult to fix,” he said. DM

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  • Jagdish Makan says:

    The biggest mistake this incompetent ANC government had done was to sell ISCOR to Arcelor Mittal. Their profit driven policy more than tripled steel prices over the years. Coupled with unrealistic central bargaining wage increases in the metal sector, transport and rail woes again due to total incompetence of their cadre deployment polices, load shedding, unrelenting cable theft and uncontrolled criminality has finally brought the steel industry to its knees.

    • Patrick O'Shea says:

      You took the words out of my mouth. And the job losses will be a lot more than 3500; many suppliers and other supply chain partners rely on this company.

    • Mike Silber says:

      At least get your facts straight – Iscor was privatized in 1989 and listed on the JSE.
      The sale to Arcellor Mital followed a standard corporate acquisition process and there was no sale by the government – though they obviously had some policy input in the foreign direct investment.

      • Jagdish Makan says:

        Thanks for the correction. The fact remains that within a year of the acquisition, steel prices doubled. I am in the related steel industry and it had a devastating effect on small businesses like ours. NUMSA’s militant stance on wage negotiations, large steel companies pandering to them, add centralised bargaining to the mix, where one shoe fits all in the industry for wages and benefits, has led to the demise of many small and medium steel companies. Now the chickens have come home to roost for large companies like Mittal also. Those who have survived now face the additional burden of load shedding and cable theft.

  • Ben Harper says:

    Proudly brought to you by the anc

  • Geoff Krige says:

    Skills, power, transport and steel – the four foundation blocks for any industrialised economy. ANC corruption, deployment of incompetent cadres, and misguided policies have come pretty close to destroying all four.

    • John Nicolson says:

      A recent news item: “The Kenyan authorities are to privatise 35 state-owned companies and are considering opening up the capital of 100 others, President William Ruto said on Thursday, as the East African country faces liquidity problems and economic difficulties.” A litmus test for those seeking solutions via open-market private ownership of critical industries.

    • J vN says:

      The term transformation, as used in SA, is a synonym for destruction. If you want to destroy something, transform it. Install the likes of Portia Derby and Dudu Myeni as token CEOs, transform the workforce, fire the skilled personnel, et voila! The result is Eskom, SAA, the Post Office and Transnet.

      Transformation = failure.

  • Ian Gwilt says:

    I read an article that said Govt acknowledged , the ban on exports had failed to halt the theft of copper and steel, but they were looking at extending the ban.
    The Mittals have done well out of Iscor since they snaffled it for a song.
    But even they can not stay ahead of this Govt,s incompetence and ability to break every thing they touch

  • Phil Baker says:

    I wonder how many other major corporations are going to give up on SA and disinvest? Are there any statistics – I would have guessed the car manufacturing sector would have been first

  • Marko V says:

    Surely what ANC wants, so they can sell it off to the Chinese.

  • D'Esprit Dan says:

    This is simply a microcosm of what pretty much the entire industrial sector in South Africa is facing. Our ‘economic cluster’ is more clusterf#ck than economic, and the only thing economic about them is their use of the truth.

  • Rae Earl says:

    The most painful aspect of the wrecking ball the ANC has become is the viewpoint of the apartheid government when they were mercifully displaced in 1994. Their viewpoint, expressed many times, was that the ANC would ruin our economy at every level from big corporates down to SME businesses. They were right. Ramaphosa was the last hope and he has been beyond pathetic as a statesman and a leader having surrounded himself with corrupt and inept cabinet ministers. Unfortunately the majority of voters simply refuse to face up to the glaring facts and will probably vote the ANC back into power. The wreckage will accelerate until nothing is left but chaos and poverty. A carbon copy of Zimbabwe today.

    • Jehan Bektir says:

      Viewpoint of the apartheid government? Not so. Viewpoint of the parties to the right, yes, but the apartheid government did not want to see the trashformation that was to follow.

    • Romy Romy says:

      I sadly concur with your judgement. They will destroy the country completely and the masses will be cheering them on at their expenses. It has happened in othe r places in Africa, it will happen in SA; that is so disconcerting.

  • Hilary Morris says:

    How utterly depressing an example of government failure. We seem permanently locked in a Catch 22 cycle. It is impossible to hope for improvement on any level while this government remains in power, and it is not likely that this situation will improve after the elections. Even if the ANC margin drops below 50 % we can expect them to co-opt the even worse EFF and other rogues and thugs. They are literally incapable of improving anything, but hey, isn’t it just heartwarming to see our president clapping his hands in delight as one tap is turned on in a township. That’s kinda his level. Dear God, where to from here?

  • Cachunk Cachunk says:

    If you want corruption, incompetence, arrogance, crime and Zimbabwe, vote ANC.
    If you want dictatorship, chaos, global pariah status, hate and North Korea, vote EFF.
    If you want democracy, stability, a better life for all, service delivery, progress and what South Africa can be, vote DA.
    It’s very simple my beloved countrymen, it’s up to us and this is probably our last chance.

    • Rose Rose says:

      Sadly you are speaking to the converted. The vast majority of ANC voters (who will probably vote ANC again) don’t read this publication – nor, probably, any other.

  • Michael Mbolekwa says:

    Well I think all signs are pointing to a total failed state though ANC denies it almost everything is collapsing, scandal after scandal nothing is working State Capture report is gathering dust no arrests its business as usual, just promises after promises.

  • Pieter van de Venter says:

    Iscor used to be a good example of money well invested by government and a government run company performing well for the greater good. Wonder what was the cut for the ANC when it was bought out?

  • PETER BAKER says:

    It’s really a no brainier….we don’t need a steel industry when we don’t have a mining industry….all thank you very much el Presidente Ramaphoria and the likes of Mantashe and the rest of the ANC which wants to reduce South Africa to a Gaza City without dropping bombs; but with policies which will have the same end result.

  • Beyond Fedup says:

    This is the reality of doing business in SA – not sustainable and stuck with an aloof, arrogant, inept and idiotic government that doesn’t listen reason, has no common sense and is clueless about running a modern economy. Not only must business contend with collapsed basic services and SOEs, but also to adherence of failed socialist centrist dogma, highly restrictive labour laws and OTT BEE strangulation. So much for our spineless and useless windbag resident, who just spews nonsense, hot air and does nothing. He is a “man” of broken promises and failed dreams! No doubt he will be surprised, shocked and call for an enquiry! The private sector has to survive on its own merits, expertise, experience and business acumen and unlike government SOEs and departments, there are no endless bailouts at taxpayer’s expense where the anc elite and cadres have been feasting with gay abandon. The chickens are coming home to roost and pity the workers, most of whom no doubt blindly, continually and moronically vote for this cabal of thieves and parasites. It is all so basic and avoidable.

  • Rob Wilson says:

    Even their ex commie heroes do better. The Russians put well trained technical people in charge of technical concerns, even if they are cadres. The difference is that they recognise that they need skills and expertise first. The ANC either does not recognise it (stupidity) or does not want to recognise it (political dogma), and believe you can just grow it from cadres.

  • ak47.king ak47.king says:

    The iron ore mining industry is already in trouble. Filling of vacancies has been frozen and they are looking at retrenchments already. The ANC government is killing the mining industry which is one of the biggest industries and employers in South Africa. There’s also a loss of specialised technical skills as these people look to greener pastures overseas and these countries are quite happy to take in people with scarce technical skills.

  • MT Wessels says:

    One hopes someone slowly explains to the retrenched union members that their sacrifice of a living wage is deeply appreciated by Chinese workers who will now be manufacturing and beneficiating low-quality steel products for export to SA to fill the void. When they see “Proudly Made In China” they will surely experience a warm feeling at the bottom of their empty stomachs. Viva SACP, Viva ANC, Viva BRICS. The ANC government cares deeply about those poor Chinese workers and their families, happily supported by voters back in SA.

  • Zamani Kutta says:

    I once told my South African colleague, way back in 2003, that, South Africa is on a sure failing mission. Unsurprisingly, he uttered the obvious- that, SA will forever be a marvel to the rest of hungry Africa.
    He now communicates to me via email – in his new found refuge in California, USA.

  • Johan Buys says:

    Arcelor Mittal has been running import parity pricing for decades (as Sasol and a few other proudly local companies do).

    They charge a local steel buyer the price it would have paid if it had instead purchased the metal from say Korea, down to insurance and shipping.

    • Jagdish Makan says:

      Yes, thanks for that. It slipped my mind. It’s totally unfair to us that locally produced steel is sold at international prices (IPP) by Mittal. I stand to correction, but I believe that anyone else importing steel is charged a substantial surcharge, so there’s no competition. We are at their mercy with pricing, yet they cannot sustain their operations here, makes one wonder.

  • Jon Quirk says:

    Why would we need a steel making facility when every thing the ANC does is designed to kill business and jobs?

    Working ports, a properly functional rail network and reliable power supply are sine qua non for heavy industry.

    What we do badly need is for Minister Ibrahim to take his role of Minister of Industry seriously, and actually do the hard work. He should be jumping up and down and turning the screws on all his fellow cabinet members, including the President himself, and making it very clear that the destruction of all the SOE sector has on jobs, and business generally; but have we heard him even raised whimper?

    What does he actually do?

  • Andre Bruton says:

    It’s all a well thought out plan to move all production from SA to overseas countries. There is hardly any beneficiation happening here. We need to promote beneficiation urgently

  • Stephan Scheepers says:

    “We are clear about the problems. They are complex and will be difficult to fix,” he said.

    Liar.

  • Richard Blake says:

    No surprise here. Anything the ANC touches it destroys.

  • Romy Romy says:

    Honestly, the actual government has no clear vision for the country. The system is too complex and requires more skills and discipline of all sorts for the current leadership. Competence is not a requisite now to hold strategic and very important portfolios anymore, who you know matters more. We are on a road towards the abyss and there seems to be no help in sight.

  • Zoe George says:

    Where are the 36 comments listed for this article?
    Why isn’t the DA & other parties making a fuss about these problems destroying the SA steel, engineering, manufacturing, mining, industries, basically the whole of the SA economy? And using it as a marketing point in their election policies?

  • Zoe George says:

    I was only able to see the other comments after I submitted a comment of my own.

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