ArcelorMittal discusses downsizing of Newcastle and Vereeniging branches

ArcelorMittal South Africa (AMSA), the prominent steel giant, revealed on Tuesday, 28 November 2023, its contemplation of a phased wind down of the company’s long business, subject to due diligence and consultation procedures.

The impact of this decision will extend to the Newcastle Works and the Vereeniging Works, with an exception made for the operational continuity of the coke batteries at Newcastle.

These batteries will persist in producing metallurgical coke for application at the Vanderbijlpark Works and for the commercial market sale of coke to the ferroalloy industry.

The company clarified that, despite implementing various interventions in recent years aimed at ensuring long term sustainability, such as aggressive cost cutting measures, heightened savings on raw material costs, adjustments to asset footprints, and numerous productivity initiatives, the cumulative effects of certain challenges proved insurmountable.

As a result, AMSA identified the following factors contributing to its decision:

• A slowing economy and a difficult trading environment: As a result of South Africa’s low GDP growth, the country’s apparent steel consumption (ASC) has decreased by 20% in the last seven years, reaching levels of around 4,0 million tonnes, reflecting low market demand in key steel-consuming sectors, limited infrastructure spend, and project delays, resulting in market overcapacity and overall weaker business confidence.
• National limits outside AMSA’s control: high transport and logistics costs, as well as escalating energy prices, compounded by well-publicised logistics failures and their cost impact, as well as the country’s ongoing electricity challenges.
• Scrap advantage over iron ore: The implementation of a preferential pricing system for scrap, a 20% export duty, and, more recently, a ban on scrap exports has given steel production via electric arc furnaces an ‘artificial’ competitive advantage over steel manufacturers beneficiating iron-ore to produce steel.

Furthermore, the steel giant noted that these structural market issues are beyond ArcelorMittal South Africa’s control and do not appear capable of being resolved in the foreseeable future.

AMSA said it will therefore initiate a consultation process in accordance with Section 189(3) of the Labour Relations Act 66 of 1995 at the appropriate time.

“A significant restructuring is being considered, with potentially 3 500 employees (own and contracted) being affected 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 explained.

Throughout the wind down process, ArcelorMittal South Africa pledged to engage with customers and suppliers in an orderly and thoughtful manner, aiming to minimise disruptions to their businesses. The company affirmed continued direct engagement with the government.

Recognising the significance of the affected operations to regional and local economies, particularly the Newcastle Works, AMSA stressed that the decision was made with careful consideration.

CEO Kobus Verster expressed that 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 on a more sustainable financial footing and able to invest the appropriate capital in product development and available growth prospects.

Considering the implications of this development, readers are invited to share their thoughts in the comment section below.