By Thys Khiba
ArcelorMittal South Africa announced that it is planning to close three long steel plants in Newcastle, Vereeniging and at Arcelor Rail and Structures. The decision to put its major long steel operations in care and maintenance due to lack of demand will affect approximately 3 500 part-time and permanent workers.
Over the past seven years South Africa’s steel consumption has declined by 20%.
The steelmaker cited Eskom loadshedding, high logistical, transportation costs and Transnet rail bottlenecks as the reasons for giving up the operations.
“Despite these best efforts, the initiatives were unable to counteract the cumulative effect of a slowing economy and a difficult trading environment,” said chief executive officer (CEO) Kobus Verster.
ArcelorMittal long steel products include wire, rods, railway rails and bars.
On Tuesday, its share price crashed almost 30% to 100c, but managed to recover some of its losses by lunchtime.
In the markets, it was down 7% to 127c in early afternoon trading. The shares have lost more than 70% of their value over the past year.
In efforts to save the operations, ArcelorMittal said they have implemented aggressive cost-cutting, increased raw material cost savings and productivity initiatives over recent years.
It is also considered that a new preferential pricing system for scrap, a 20% export duty, and a ban on scrap exports have given steel production via electric arc furnaces an “artificial” competitive advantage over steel manufacturers, beneficiating iron-ore to produce steel.
For scrap metal traders who recycle steel, this means, that they are gaining an advantage over the company’s more intense operations that consume heavy raw materials such as iron ore.
“These structural market issues are beyond ArcelorMittal South Africa’s control and do not appear capable of being resolved in the foreseeable future,” said the steelmaker.
The ArcelorMittal’s coke batteries at Newcastle, which produces metallurgical coke for use at the Vereeniging Works, will remain operative.
“The ArcelorMittal South Africa board and management have reached this point after having exhausted all possible options.
“As difficult as these circumstances are, we have a duty to ensure that the business remains sustainable in the long term, in the interests of the company and its stakeholders. The remaining business, after the wind down, will be substantially more profitable and able to invest the appropriate capital in product development and available growth prospects,” said Verster [CEO].
ArcelorMittal
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