ArcelorMittal closing down long-steel works, cutting about 3 500 jobs

ArcelorMittal South Africa will wind down its long-steel works, which means that about 3 500 jobs in the industry will be cut.

Closing its long-steel works will happen despite government trying to intervene over the past few months and the downstream industry holding a crisis meeting a year ago to determine an urgent plan of action to prevent the imminent closure of the plants.

According to a statement that ArcelorMittal issued on Monday, the decision to close its Longs Business is due to sustained challenges, including weak economic growth, high logistics and energy costs and an influx of low-cost steel imports, particularly from China.

Kobus Verster, CEO of ArcelorMittal in South Africa, says persistent high logistics and energy costs, combined with insufficient policy interventions regarding the substantial subsidies for scrap-based steelmaking operations to the detriment of ArcelorMittal’s Newcastle Works left the Longs Business unsustainable.

The Newcastle Works beneficiates South African-sourced raw materials. The policy interventions are especially those made some time ago, such as the Price Preference System [PPS] and the Export Scrap tax.

“Despite extensive consultations with government and stakeholders to find viable solutions to sustain the Longs business, progress was insufficient to avoid the wind-down. The company will now transition the Longs Business into care and maintenance.”

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ArcelorMittal steel production to cease in January

Steel production at ArcelorMittal is anticipated to cease by late January 2025, with the wind-down of the remaining production processes completed in the first quarter of the year.

Verster says the persistent overcapacity in the global and local markets and unsustainable low international steel prices further exacerbated the business’ structural difficulties. “Asset utilisation in the Longs Business reached only 50% as weak market conditions necessitated the operation of its blast furnace at the lowest level technically and responsibly possible.”

According to Verster, it was a difficult decision to make. “Over the past year, our employees and dedicated management team demonstrated remarkable commitment and resilience in the face of serious uncertainty.

“Unfortunately, despite everyone’s best efforts, including significant engagement with stakeholders, the structural challenges in the Longs Business were not resolved. While this outcome is deeply disappointing, especially given the economic challenges facing South Africa, we remain focused on securing a sustainable future for the remaining operations.”

Closing down the Longs Business will directly affect operations at the Newcastle and Vereeniging Works and AMRAS (the rail and structural subsidiary). However, Newcastle’s coke-making operations will continue, although it will be scaled back to reflect reduced demand.

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Knock-on effect in ArcelorMittal Flat Business as well

Verster says there will also be a knock-on impact on certain roles in the Flat Business, as well as for some personnel in the corporate support service areas. He says approximately 3 500 direct and indirect jobs will likely be affected, but the broader economic effect on induced jobs is expected to be significantly higher, especially in the Newcastle region.

A formal Section 189(3) labour consultation process will start soon. Verster says the company is actively working to realign its R1 billion working capital facility secured in 2024 to support this transition.

He points out that the South African steel industry is currently facing its greatest sustained challenge since the 2008/09 financial crisis. International steel prices remain unsustainably low amidst record Chinese exports, with Chinese Hot Rolled Coil and Rebar prices retreating to below $500 per tonne levels in the fourth quarter of 2024.

Furthermore, Verster says, ever-higher Chinese exports have led to global announcements of production stoppages, capacity cutbacks and plant closures, with international markets prioritising fair trade actions and reviewing decarbonisation ambitions due to affordability concerns.

South Africa’s crude steel production for 2024 is anticipated to be 2.3% lower than in 2023, he says, with imports increasing nearly 50% since 2018 and exports declining by 40%. “The weak domestic market for long steel products, coupled with the overcapacity of local and international steel production, has left the business unsustainable despite ongoing efforts.”

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Stakeholders agreed that radical interventions were needed

Verster says it was unanimously agreed by stakeholders that radical interventions were required to address the decline in the steel and engineering value chain at the inaugural sectoral engagement convened by Steel and Engineering Industries of Southern Africa (SEIFSA) and the Department of Trade Industry and Competition in November.

In addition, he points out that ArcelorMittal anticipates a significant decline in earnings, with earnings per share expected to decrease to a loss within a range of R5.48 to R6.21 per share, compared to the previous year’s loss of R3.52 per share.

Headline earnings per share are projected to decline to a loss between R4.06 and R4.41 per share, from the previous year’s loss of R1.70 per share.

“These increased losses reflect the challenging market conditions, including unsustainably low international steel prices, record Chinese exports, instability of the blast furnaces operations in the Flats Business in the second quarter and the impact of the Longs Business wind-down costs, which include approximately R2.7 billion in asset impairment, wind-down and severance charges.”

Verster says revenue for 2024 is expected to decline by more than 5% compared to 2023, driven by weaker net realised prices, reduced asset utilisation and the challenges in the Longs Business.

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SEIFSA has long warned about job crisis in sector

Tafadzwa Chibanguza, chief operating officer at SEIFSA, warned a year ago that the steel and engineering sector is on the precipice of an unprecedented job crisis.

“The employment trends in the metals and engineering sector are an important indicator for the underlying structural constraints that plagued the sector for the last decade and a half. The sector currently employs 362 871 people, which is a significant drop from the 577 507 people employed in 2008.

“This equates to a decline of 214 636 jobs, or 37.2% and when measured on a compound basis, represents a 2.9% decline per annum over this period,” he said.

“Employment in the sector decreased at double the rate of production over the same period. Considering the steel sector’s induced economic multiplier of 2.7 times, the employment multiplier of 6 times and the dependency ratio of between 7 and 10 people relying on each formal job, the sectors’ employment trends spell wide-scale social and economic disaster.” 

The steel and engineering sector is crucial for the country’s economy. It is the backbone of the country’s industrial base, and the steel and engineering sector is also a strategic avenue for the country to convert its vast mineral endowment to final engineered products.

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293 754 direct and indirect job losses expected

Chibanguza said a year ago that taking into account the 3 500 employees who will be directly affected by the plant closures, projecting the 2.9% compound annual growth rate of decline across the entire steel and engineering sectors employment and applying the steel sector employment multiplier, on a five-year horizon, SEIFSA estimates a staggering 293 754 direct and indirect job losses.  

“This is an outcome that South Africa, given its already untenable unemployment rate, can ill afford. Doing everything possible to [find] lasting solutions to averting the announced plant closures should dominate our and government’s agenda, failing which industry and the economy will be left to deal with a catastrophic socioeconomic jobs crisis of unimaginable proportions.”