ArcelorMittal seeks govt help as plant faces closure
ArcelorMittal South Africa (AMSA) has called for the government to step in to save its loss-making long steel division from imminent closure as high costs and policy take a toll.
Other steel producers, which use scrap as a key input, have however warned that undue interference could threaten their operations.
AMSA’s long steel plant in New Castle is the only integrated steel plant in the country, producing structural steel like rebar, among other long products, from raw inputs of iron ore and coking coal.
The company had warned the market last year that the plant could face closure.
AMSA has been reluctant to pull the trigger but has now sounded the alarm after the longs business incurred a ZAR500m ($28m) loss in the third quarter of this year.
AMSA CEO Kobus Verster said a decision to close the plant is imminent, and likely before the end of the year should no intervention be forthcoming.
“The balance sheet can’t handle it, and it’s not fair to shareholders,” Verster noted in an interview with McCloskey.
While the company is calling for relief when it comes to high power and rail tariffs, it is also urgently asking government to change its export scrap policy and a preferential pricing system, which is artificially stoking an oversupply of long steel in South Africa.
The New Castle plant has for years been running well below its design capacity of up to 1.8 mt/y to produce around 1 mt/y – the minimum level at which the mill can run.
Meanwhile, regional demand for high-value long steel products is around 400,000 t/y.
Despite this, longs production is also coming out of mini mills, or electric steel plants, that are flourishing under government policy. Notably, the preferential pricing system requires any scrap steel intended for export must first be offered to the mini mills at a 30% discount.
The government’s Industrial Development Corporation has also heavily funded the mini-mills with an estimated exposure of ZAR14bn ($790m).
Verster said these mini mills were facing bankruptcy before the government stepped in.
“So, they’re commercially not viable on a competitive basis. Now they’ve been revitalised, substantial state funding has been put into them to get additional capacity in a market that’s at overcapacity … [and] Newcastle, the scrap collectors and the scrap businesses are paying for it,” he said.
While AMSA has been engaging government at the highest level, time is running out.
“What we’ve been asking is not any special treatment. We just want a competitive tariff for electricity and for rail. And we want to have a fair treatment of input cost,” Verster said, noting that Eskom had failed to support its application for a negotiated price agreement.
He said that while rail reform appeared promising, the benefits of third-party access would not come in time to save the longs business.
The mini-mills, as represented by the Electric Steel Producers of South Africa, have called on the government to not give in to AMSA’s pleas.
“Removing the export tax would threaten the survival of many local steel mills, lead to thousands of job losses, and undermine the government’s stated commitment to industrial diversification and sustainability,” the group said in a statement.
The electric producers noted that steel from scrap is less carbon-intensive to produce.
“Scrapping the export tax would also fly in the face of urgent worldwide trends to recycle and to decarbonise the steel industry by moving away from iron ore-based steel production,” they said, noting too that they collectively make up 75% of SA’s long steel production capacity.
The electric producers further emphasised that ArcelorMittal’s poor financial performance was independent of the scrap export tax.
“While we agree that lowering electricity and transport costs is vital as requested by ArcelorMittal, prioritising ArcelorMittal at the expense of greener producers would only serve to hurt the broader economy and likely lead to the closure of the firms involved in environmentally friendly steel production,” they said.
Charles Dednam, secretary general of the South African Iron and Steel Institute – which counts AMSA and the mini mills among its members – said that if government does leave the scrap policy untouched, it ought to do something on the raw material basket to ensure input costs come down for AMSA.
“Ultimately however, with structural steelmaking at overcapacity, it really all comes down to stimulating demand,” Dednam said. “We need to do everything we can to re-industrialise this country.”