In an unexpected move on Tuesday, 28 November 2023, ArcelorMittal South Africa (AMSA) announced its intention to undertake a phased wind down of its longstanding business, leaving many in a state of shock.
Click here to read more about this
Moreover, the wind down process will have repercussions for both AMSA’s Newcastle Works and Vereeniging Works, with an exception granted for the operational continuity of the coke batteries at Newcastle.
Despite implementing a range of interventions aimed at ensuring long term sustainability, including aggressive cost cutting measures, heightened savings on raw material costs, adjustments to asset footprints, and numerous productivity initiatives, the cumulative effects of certain challenges have proven insurmountable.
On Wednesday morning, 29 November 2023, in a virtual meeting with the media, AMSA CEO Kobus Verster elaborated on the matter which would impact approximately 3,500 employees.
Verster highlighted key challenges in Long Steel production, including the poor reliability of Eskom and Transnet, as well as increased costs over a six-year cycle across various factors such as iron ore, import coal, local coal, rail logistics, electricity, natural gas, labour, and rebard prices.
Examining the situation in Newcastle, Verster noted its locational disadvantage from both its main market and export port. The challenges of a sluggish economy, high inflation, and general underperformance in steel using sectors were also underscored.
“The financial drain which the Longs business, and Newcastle Works in particular, has placed upon ArcelorMittal South Africa put the financial future of the company at risk,” said Verster.
Despite mitigation efforts, Verster pointed out a responsibility to shareholders and the company to reduce loss making operations and focus on future sustainability. “Years of effort to manage Longs back to profitability were not successful,” he noted.
Moreover, AMSA has noted that shareholders have previously been advised of the efforts made to ensure the long term viability of the Newcastle Works and the broader Long Steel Products Business (Longs Business).
At the beginning of 2023, an optimisation programme commenced. Prior to this, over the past few years, the Company implemented aggressive cost savings initiatives, improved raw material cost savings, asset footprint adjustments and various other productivity initiatives.
Unfortunately, despite best efforts, the initiatives implemented were not able to counter the combined effect of the following:
- A slow economy and difficult trading environment: On the back of low GDP growth in South Africa, in the past seven years, the country’s apparent steel consumption (ASC) has reduced by 20%, 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 overcapacity in the market and overall weaker business confidence.
- National constraints beyond the control of the Company: High transport and logistics costs as well as energy prices, exacerbated by the well publicised logistics failures and their resultant cost impact, and the prevailing electricity challenges that the country faces.
- Scrap advantage over iron ore: The introduction of a preferential pricing system for scrap, a 20% export duty, and more recently, a ban on scrap exports has allowed steel production through the electric arc furnaces route an ‘artificial’ competitive advantage when compared with steel manufacturers beneficiating iron ore to produce steel.
With this in mind and extensive financial losses, Verster noted AMSA would now begin a structured and orderly wind down process at both Newcastle Works and Vereeniging.
However, Verster pointed out that in the past seven years, Longs only made a profit twice and the majority of Longs products do not make a contribution to the company’s markets.
“Job losses are inevitable, but will be managed down as much as possible from an estimated 3 500 people,” said Verster, who highlighted that this would include both its staff and contractors.
The timeline of the process is expected to be five to six months, but Verster said he could not commit to this, as the company still needed to undergo its consultation process with its customers and their orders.
It should be highlighted, that according to the company, in the circumstances, the ArcelorMittal South Africa Board and Management had no option but to embark on a process that contemplates the wind down of the Company’s Longs Business, which for now may be placed in care and maintenance.
“This is subject to due diligence and a consultative, and iterative process involving key customers, suppliers, organised labour, and other stakeholders. The due diligence and final implementation plan will determine the extent, timing, and phasing of the winding down of operations. Affected plants will be most plants at Newcastle Works, the Vereeniging Works, and rolling facilities which use Newcastle material as feedstock,” explained the company.
Verster pointed out that an estimated 1 400 AMSA employees from Newcastle Works would possibly lose their jobs, with an additional 880 contractors. He noted this was the net number and excluded those from the Coke batteries.
Furthermore, Verster said those employees who could be transferred where AMSA had vacancies would be.
As thousands of families will now be impacted, Verster said that AMSA is committed to a sustainable operating future, cognisant of the challenging operating environment.
“We take corporate social responsibility seriously and are fully committed to playing our part in the future of South Africa,” he said,
Remaining business, after the wind down, will be able to invest capital in product development and available prospects.
While AMSA now looks at future business and focuses on re-establishing itself as a champion of innovative export driven steel-based industrialisation in South Africa, what are your thoughts on the above mentioned? Share your views in the comment section below.
Comments 1
This will be a disaster for Newcastle. 20 000 people will be dumped into poverty