ArcelorMittal Extends Longs Business Operations by One Month

Key points in this article:

• Navigating Market Turbulence: AMSA confronts the highest steel import levels on record, challenging domestic producers and leading to significant operational and financial strain.
• Economic Impact: The company reveals a stark financial downturn with a headline loss of R5.1 billion, signaling the intense pressures facing South Africa’s steel industry.
• Strategic Pause: With support from a R380 million IDC loan, AMSA extends the wind down of its Longs Business, securing time for critical order fulfillment and strategic discussions with government officials.
• Commitment to Resilience: Despite immediate challenges, AMSA is forging ahead with a focus on high-return investments, environmental sustainability, and community enhancement to rebuild and grow.

The strategic postponement of ArcelorMittal South Africa’s (AMSA) Longs Business wind down, impacting its operations at both Newcastle Works and Vanderbijlpark Works, has been extended by one month.

This significant decision aligns with the release of AMSA’s financial outcomes for the year concluding 31 December 2024, revealing some of the most formidable challenges the company has navigated since the 2008/09 economic downturn.

On Thursday, 6 February 2025, AMSA provided insights into the market dynamics, explaining that steel imports into South Africa had reached unprecedented heights, accounting for 33.6 percent of the country’s Apparent Steel Consumption. This scenario poses an immense challenge for local producers, though there was a slight reprieve with reduced import volumes in the latter half of 2024.

AMSA’s performance was notably affected by adverse international steel-to-raw material price spreads and intensified competition from subsidized imports. As a result, steel sales volumes dropped by 6% to 2.3 million tonnes, with revenues declining by 7% to R38.6 billion compared to the previous year.

The company disclosed a headline loss of R5.1 billion and an attributable loss of R5.8 billion, underscoring the acute pressures within the South African steel sector.

This attributable loss encompassed R1.8 billion in exceptional charges linked to the wind down and asset impairments of the Longs Business.

Moreover, AMSA reported an operational EBITDA loss of R1.8 billion, a stark contrast to the R56 million profit in 2023, with R1.1 billion of this loss tied directly to the Longs Business, and an additional R670 million due to unusual, chilled hearth conditions impacting two blast furnaces in the Flat Business during the second quarter.

The company also detailed that net borrowings, excluding the capitalisation of accrued interest and fees (R1.4 billion) due to the ArcelorMittal group, remained stable at R3.8 billion over the last three quarters. However, after capitalisation, net borrowings increased to R5.1 billion.

In a pivotal development, AMSA decided to defer the planned transition of its Longs Business into care and maintenance, originally slated for the end of January 2025. This one-month extension, underpinned by a R380 million shareholder loan from the Industrial Development Corporation (IDC), facilitates the completion of outstanding orders for key sectors like automotive and seamless tubes, while dialogue with the South African Government on the division’s future continues.

Chief Executive Officer, Kobus Verster, commented, “The South African steel industry is at a critical juncture, facing unprecedented challenges from global market dynamics and trade practices, as well as domestic policy issues. We are actively engaging with the Government and key stakeholders to implement urgent interventions needed to address the decline in this strategic sector and reposition it for growth.”

Despite these headwinds, AMSA has not wavered from its commitment to operational excellence, achieving R910 million in benefits from its Value Plan in 2024. The company also reported enhanced asset utilisation in its Flats Business towards the year’s end, with crude steel production rising by 12 percent.

Furthermore, AMSA is advancing its high-return investment portfolio, focusing on bolstering balance sheet resilience potentially through recapitalisation.

The company’s strategic roadmap for the next five years is built on four foundational pillars: prioritising safety, fortifying core business operations, executing high-return projects, and positioning for growth through premium, value-added markets.

Key projects within this strategic portfolio include:

• A 1.5 million tonne electric arc furnace at Vanderbijlpark.
• A blast furnace gas recovery plant to augment electricity self-generation.
• A new galvanizing and Magnelis line to deploy cutting-edge coating technology in Southern Africa.
• Optigal® for organic coated products, targeting import substitution.

These initiatives are pivotal for advancing localisation, reducing import dependency, cutting costs, and driving volume growth in critical industries like automotive, appliances, and renewable energy.

On the environmental and societal fronts, ArcelorMittal South Africa has made significant strides in air quality management, achieving substantial reductions in sulfur dioxide emissions and particulate matter at Vanderbijlpark. The company’s community outreach has touched over 27,000 learners through its science centers and provided daily sustenance to over 2,900 individuals via its Thusong Project.

Looking forward to the first half of 2025, AMSA does not anticipate a swift recovery in market conditions. Key areas of focus will include:

• Pushing forward discussions with the South African Government concerning the Longs Business.
• Enhancing the sustainability of the Flats Business and market coke operations.
• Revamping fixed cost structures.
• Advancing the development of its high-return investment portfolio.

Moreover, AMSA has continued to receive robust support from the ArcelorMittal group, with the shareholder loan now at R5.1 billion and fully subordinated. Additionally, the IDC has restructured a R950 million secured short-term loan, extending the repayment deadline to September 2026.

“While we face significant challenges, we remain committed to implementing our strategic initiatives and working closely with all stakeholders to ensure the long-term sustainability of our operations. The support from our parent company and the IDC demonstrates confidence in our ability to navigate through these challenging times,” added Verster.

As ArcelorMittal South Africa (AMSA) has strategically postponed the wind down of its Longs Business by one month, with support from a R380 million loan from the Industrial Development Corporation (IDC), despite its challenges, what are your thoughts on the above?

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