Steel Shakeup: ArcelorMittal SA's Shutdown Signals Economic Strain
By Strategic Research Institute on Dec 12, 2023 11:35 am
Synopsis:
ArcelorMittal South Africa's decision to shutter operations in Newcastle and Vereeniging, eliminating 3,500 jobs, sends a stark message about the country's economic challenges. The steel giant cites inefficiencies in Transnet and Eskom, coupled with policy blunders, for its financial woes. President Cyril Ramaphosa's reform agenda faces scrutiny as job losses loom. The closures, set for January 2024, underscore broader issues, including declining demand, infrastructure woes, and regulatory missteps, casting a shadow over the nation's steel industry.
Article:
In a significant economic upheaval, ArcelorMittal South Africa, the continent's largest steelmaker, has announced the closure of its operations in Newcastle and Vereeniging, starting January 2024. The move puts 3,500 jobs at risk and lays bare the challenges plaguing the country's steel industry.
The CEO of ArcelorMittal South Africa, Kobus Verster, pointed to systemic issues affecting the economy during a press briefing. The company, once profitable, witnessed a staggering swing from a R3-billion profit in H1 2022 to a R448-million loss in the same period this year. The closures, a drastic measure, spotlight the grim reality of South Africa's economic landscape.
Verster highlighted the unreliability of Transnet and Eskom as key contributors to ArcelorMittal's financial woes. Inefficiencies in Transnet's rail network forced the company to resort to road transportation, incurring substantial losses and increasing operational costs. Eskom's blackouts further compounded the challenges, disrupting steel production processes.
The broader context reveals a decline in demand for long steel products over the past seven years, coupled with a lack of large-scale infrastructure projects. South Africa's crude steel manufacturing capacity far exceeds current demand, leaving companies like ArcelorMittal grappling with excess capacity.
Policy blunders by the Department of Trade, Industry, and Competition (DTIC) exacerbated the situation. The introduction of a preferential pricing system for scrap, a 20% export duty, and a ban on scrap exports tilted the playing field, favoring steel production via electric arc furnaces. This further disadvantaged companies relying on iron ore, such as ArcelorMittal.
Industry voices, including the Steel and Engineering Industries Federation of Southern Africa (Seifsa), have called for urgent intervention from President Cyril Ramaphosa to rectify the policy blunders. The repercussions extend beyond the steel industry, affecting related sectors like auto, motor, construction, and mining.
As ArcelorMittal prepares to wind down operations, the CEO expressed openness to talks with the government. However, skepticism prevails about the government's ability to address the complex problems facing the steel industry.
Conclusion:
ArcelorMittal South Africa's decision to close operations serves as a poignant symbol of the multifaceted challenges gripping the nation's steel industry. Beyond being a financial setback for the company, it underscores systemic issues related to infrastructure, energy, and policy missteps. The impending job losses add urgency to calls for intervention from the government to steer the industry toward recovery. As the steel giant navigates a winding-down process, the fate of South Africa's steel sector hangs in the balance, requiring comprehensive and swift measures to avert a broader economic catastrophe.
Bron Steelguru (via email)