Steel producer ArcelorMittal South Africa (AMSA) has indicated that it may close its long-products business, which could result in the loss of 3 500 direct and contractor jobs at its Newcastle and Vereeniging operations.

In a statement, the JSE-listed company said the potential wind down had been precipitated by structural issues outside of its control, including:

• A 20% fall in demand over the last seven years to four-million tonnes, on the back of persistently low economic growth, limited infrastructure spend and project delays;
• Rising transport and logistics costs, compounded by rail-service disruptions, as well as escalating energy prices; and
• The prevailing scrap advantage over iron-ore, precipitated by the preferential pricing system for scrap, a 20% export duty, and the recently imposed ban on scrap exports, which had given electric arc furnaces an “artificial” competitive advantage over integrated mills beneficiating iron-ore.

CEO Kobus Verster said the board and management decision to consider a wind down of the long-products business was reached after “all possible options” were exhausted, had not been “taken lightly” and was being pursued in an effort to place the rest of the business on a “sustainable financial footing”.

The company also acknowledged the potential negative impact on the regional and local economies in which the mills were located, in particular the Newcastle Works, which was a major source of economic activity and jobs in the KwaZulu-Natal town.

The company said the wind-down would exclude the coke batteries at Newcastle, which would remain operative, producing metallurgical coke for use at the Vanderbijlpark Works, and for sale of commercial market coke to the ferro-alloy industry.

A consultation process in accordance with Section 189(3) of the Labour Relations Act will be initiated with unions and “every effort will be made to manage down the number of jobs affected”.

“The conclusion and number of affected posts will be finalised within a detailed wind down implementation plan that is being developed," the company said.

UNCERTAIN CHRISTMAS
Trade union Solidarity responded with shock to the announcement that three long-steel plants could be closed, noting that Arcelor Rail and Structures was also potentially affected by the wind down.

It said that 3 500 employees and their families were now facing an uncertain Christmas season.

The union also questioned the timing of the "drastic" move, noting that loadshedding and Transnet’s high costs and unreliability were "nothing new".

Solidarity argued, therefore, that a consultation process with parties affected by the decision, including trade unions, should have preceded the announcement, noting that it was still awaiting the formal restructuring notices.

"After receipt of the section 189 (A) notice, Solidarity will start to meet with members and will support them during all the processes that may follow."

ArcelorMittal South Africa said it also intended engaging with its customers and suppliers "to minimise the disruptions to their business, as far as reasonably possible".

“The company continues to engage directly with government,” the company added.

AMSA slumped to a R448-million loss in the interim period to June 30, a dramatic deterioration from the comparable period of 2022 when it reported a R3-billion profit.

The poor performance was attributed to intense loadshedding during the period, which not only disrupted the group’s operations, because of 41 Eskom instructions during the period for a curtailment of its electricity demand, but also downstream demand, as fabricators pulled back on production shifts.

The group has also been vocal about the negative impact of the collapse of the Transnet Freight Rail service, which has been particularly acutely felt at the Newcastle Works, which is located far away from its sources of raw materials.

Solidarity said the ArcelorMittal South Africa announcement was a signal that government’s mismanagement of State enterprises such as Eskom and Transnet, as well as its inability to promote economic growth, were now "claiming victims".