Respite for Amsa
• Mothballing of Newcastle and Vereeniging units on ice for up to six months
ArcelorMittal SA (Amsa) has deferred the mothballing of its long-steel units at Newcastle and Vereeniging for up to six months, saying commitments by the government and Transnet have bought the operations some time.
The decision brings brief relief to employees at SA’s biggest steel producer, where about 3,500 jobs were on the line. However, Amsa said progress with agreed steps will determine the future of that business as the group will be reviewing the deferral weekly.
Amsa CEO Kobus Verster said on Thursday that engagements with stakeholders — including the department of trade, industry & competition, Transnet executives, many steel industry bodies, organised labour, affected suppliers, customers and community forums
— have resulted in some urgent short-, medium- and long-term initiatives being identified to save the operations. The short-term initiatives including port and rail service improvements, which have been agreed on with the Transnet leadership alongside engagement with the government after the expiry of the steel scrap export ban in December, put the group in a good position to start a new chapter.
“During the six-month period, the objective is to further progress and conclude these short-term initiatives [and] finalise their commercial and contractual agreements, followed by presentation to secure the targeted benefits,” he said.
“We indicated that the remaining business after the wind-down will be more profitable and sustainable than the pre-wind-down business; it is therefore vital that the business case for the continued operations deliver a better financial outcome than the value of the closure.
“We will continue to engage the government on the broader steel scrap policy, which in its form threatens the existence of small and medium-sized scrap entrepreneurs and traders, and continues to put our longs business at risk.”
At the end of November, Amsa sent shock waves through the economies of Newcastle in KwaZulu-Natal and Vanderbijlpark in Gauteng when it announced it might close its long-products business, which could result in the loss of 3,500 direct and contractor jobs at its Newcastle and Vereeniging operations.
The group, which relies heavily on rail monopoly Transnet to transport 91% of the iron ore and 100% of the coking coal consumed at its Newcastle and Vanderbijlpark plants, blamed Transnet Freight Rail dysfunction for runaway costs.
Long-steel products include rebar, wire rods, merchant bars, rails and sections. The automotive industry consumes about 70,000 tonnes a year of the company’s longs product range, while the construction, mining, electro-technical, electricity transmission, aero and defence, rail, wire, fasteners, concrete reinforcing, cladding and roofing sectors also rely on it.
From 2019 to 2022, the company’s use of road transport to bring raw materials to its plants grew 210%, while production fell 20%, it said.
In the 2022/23 financial year, Amsa put the cost of Transnet’s inefficiencies to the business at R1.1bn, made up of R600m in negative effects on sales and R500m in lower efficiencies and operating costs.
Verster said the group worked with trade, industry & competition minister Ebrahim Patel and his department to see
IN THE 2022/23 FINANCIAL YEAR, AMSA PUT THE COST OF TRANSNET’S INEFFICIENCIES TO THE BUSINESS AT R1.1BN
where they could close the duties loopholes, while Transnet also committed to speeding up the reform of its rail operations, which will aid Amsa in revitalising its longs business.
“The key focus for the first half of 2024 will be to progress and conclude the short-term initiatives while working with the government, customers, suppliers, labour and other stakeholders to consider and implement the medium- and longer-term structural changes necessary to ensure a level playing field and the sustainability of the SA steel industry,” he said.
“We are much more confident today than we’ve ever been. I think there is also a different realisation from many players’ perspective that this is serious, given the level of engagement and precision,” he said. Job losses that harm the economy “can be avoided”.
The CEO said that part of the work would be maintaining oversight on the initiatives and tracking the benefits.
“We know this is not a without-risk decision; it requires work,” he cautioned.
The medium- to longer-term initiatives include longer-term iron-ore security in pricing, value chain efficiencies and targeted investments to replace imports.
POSITIVE ROLE
Welcoming the delay, the department of trade, industry & competition said the expected improvement in infrastructure spending, coupled with turnaround plans on transport logistics and the commencement of trade under the African Continental Free Trade Area, will all play a positive role in strengthening both demand and supply side challenges in line with the objectives of the steel master plan.
The deferral comes as Amsa swung to a headline loss of R1.9bn for the year ending December 31 from a R2.6bn profit in 2022. The company stated a small Ebitda (earnings before interest, tax, depreciation and amortisation) of R56m from R4.2bn in 2022.
Despite sales volumes rising 12% to 2.4-million tonnes, with crude steel production 15% higher against the comparable period, rand steel prices were down 9% (or 20% in dollar terms), it said. The raw material basket (RMB), including iron ore, imported coking coal and scrap, was flat in rand terms while the international RMB increased 2% in rand terms.
“These steel prices and raw material trends highlight the very serious spread-squeeze that is affecting the global steel market,” said Verster, pointing out that SA was following these international trends.
Internationally, the World Steel Association expects a 1.9% increase in steel demand, with China continuing to play a directional role in international steel demand and pricing trends.
Amsa said prices are unlikely to remain at current low levels based on international spreads being under extreme pressure.
ArcelorMittal’s share price rose as much as 4.17% to R1.25 on Thursday before retreating to close 2.5% lower at R1.17.