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02 July 2024 ArcelorMittal South Africa will no longer shut down its steel-making operations in Newcastle and Vereeniging, saying its U-turn was largely informed by early improvements in the country’s electricity and logistics situation. The decision not to mothball ArcelorMittal’s long-steel operations means that the company is likely to preserve 3,500 jobs and thousands of indirect jobs that are in the steel consumption value chain. ArcelorMittal’s operations in Newcastle and Vereeniging produce long-steel products such as fencing material, rods and bars that are used in the construction, mining and manufacturing sectors. In November 2023, the company announced it would shut down its steel operations that were performing at a loss due to Eskom blackouts, Transnent’s inability to rail goods to market, and the government’s policy blunders in not protecting the local steel industry. ArcelorMittal also blamed lower demand for steel products owing to a weak domestic and global economy. ArcelorMittal rail and structural operations in Mpumalanga, which rely on intermediate steel products currently produced at Newcastle, were also at risk of closure. In a briefing with journalists on Tuesday 2 July, the CEO of ArcelorMittal South Africa, Kobus Verster, said the company has seen encouraging developments in the operating environment over the past six months — especially on the Eskom and Transnet fronts. “The long-steel operations are very stable and we have committed to that business and keep it operational,” said Verster, adding that the company was still assessing the long-term prospects of the operations. Transnet, Eskom impact The dysfunction of Transnet’s rail network has meant that ArcelorMittal is transporting raw materials to its factories by road, which is more expensive. ArcelorMittal relies heavily on Transnet Freight Rail to transport 91% of the iron ore and 100% of the coking coal consumed at its Newcastle and Vanderbijlpark factories to produce steel. Then there are Eskom’s blackouts, which harm ArcelorMittal’s steel production process. Higher stages of load shedding, coupled with load curtailment, resulted in ArcelorMittal factories not having a reliable power supply for hours. This forced the company to find alternative sources of electricity at an additional cost. Verster said the increase in power generation in recent months (there have been no Eskom blackouts for about three months) has given ArcelorMittal breathing room to improve its operational efficiencies. Transnet is also seeing an early turnaround, with the new management reporting an increase in rail volumes and improved port operations. Read more in Daily Maverick: Transnet could stage one of the greatest turnarounds in business history. Verster expects further improvements to continue on the Eskom and Transnet side in the coming months, which would also bode well for the fate of ArcelorMittal’s steel-making operations. Financial pressures Despite this optimism, ArcelorMittal’s operations still face serious financial challenges. The company warned on Tuesday that its financial performance during the six months ended 30 June 2024 would be weak. This spooked investors, sending the company’s share price down by up to 14% during intra-day trade. The shares eventually finished 4.8% lower on Tuesday. The steelmaker expects its headline loss per share to worsen from R0.40 during the six months ended 30 June 2023 to between R0.96 and R1.04 in 2024. Headline earnings/loss per share is the main profit/loss measure used in South Africa and strips out certain once-off items (such as acquisitions), which might artificially boost a company’s profits instead of depicting its organic performance. This weaker performance was attributed largely to “significant instability” at ArcelorMittal’s Vanderbijlpark blast furnaces – which produce flat steel products – during April and May due to chilled hearth conditions. This resulted in some loss of sales and higher costs for the company in an already depressed steel market. In light of its financial pressures, ArcelorMittal has asked its workers to not ask for above-inflation wage increases.Verster said the request for workers and their representative trade unions to embrace a compromise had proved unsuccessful, adding that a resolution on labour costs was still required. For the steel business to remain operationally viable in the long term, ArcelorMittal wants, among other things, protection measures (in the form of duties) for the local steel industry against imported steel flooding the market. The International Trade Administration Commission of SA has implemented a provisional safeguard duty of 9% on certain hot-rolled steel products. The commission is considering duties on other steel products, including long products. ArcelorMittal has been calling for an import duty higher than 9%, instead suggesting 25%. Verster said this percentage was justified because other countries had implemented similar levels of duty to protect their steel industries |