ArcelorMittal SA sounds warning to labour as it mulls closure of steel operations

2 May 2024

The company will make a final decision by August on whether to keep open or shut down its loss-making long-steel operations in Vereeniging and Newcastle. ArcelorMittal has argued that curbing above-inflation pay rises in the steel industry is required to keep operations financially sustainable.

As SA’s struggling steel industry is locked in pay rise negotiations with trade unions and races against time to stabilise labour relations, the country’s largest steel maker has fired a two-fold warning to workers.

ArcelorMittal has urged SA’s nearly 400,000 steel workers to either moderate their pay rise expectations and sympathise with the industry’s difficult financial situation or continue to push for high pay rates and risk job losses.

ArcelorMittal SA CEO Kobus Verster is emphatic that the steel industry’s heydays — when steel companies were profitable and could easily pay above-inflation wages — are long gone.

But workers and their representative trade unions are not adjusting to the new, hard reality, Verster said.

“Labour never supports anything [a pay rise offer] that is inflation-linked or inflation plus 1%. We have engaged with them. We have a three-year [wage] agreement with them…

“We have asked them to moderate the current agreement… by negotiating a lesser increase to prevent job losses. But we have gotten absolutely nowhere,” he said.

And now, ArcelorMittal, which employs over 9,000 workers and contractors (paying them at least R5-billion annually), is at risk of shutting down its loss-making long-steel operations in Vereeniging (Gauteng) and Newcastle (KwaZulu-Natal).

The closure of these operations would result in the loss of 3,500 direct and contractor jobs in the two provinces.

ArcelorMittal rail and structural operations in Mpumalanga, which rely on intermediate steel products currently produced at Newcastle, are also at risk of closure.

A decision on the future of the long-steel operations has been deferred for six months to buy ArcelorMittal some time to determine if they could be saved through short-term interventions.

A final decision has to be made by August, said Verster.

“We are still progressing with the short-term initiatives. I can’t give any more guidance. We are reasonably positive that we are making progress,” he told journalists on 30 April at a tour of ArcelorMittal’s steel operations in Vanderbijlpark (Gauteng).

Needed reforms

At a generic level, ArcelorMittal wants to see state-owned transport group Transnet move fast with implementing reforms to its port and rail operations. The dysfunction and unreliability of Transnet’s rail network have 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 delay ArcelorMittal’s steel production process. Higher stages of load shedding mean that its factory in Vanderbijlpark is, at times, asked by the power utility to engage in load curtailment for eight hours a day. This effectively reduces its use of electricity.

Fixing Transnet and Eskom, entities that have been dysfunctional for more than a decade, will not happen overnight.

ArcelorMittal has been criticised for being naive in believing that logistic and energy reforms could be delivered by the government within the six months that it has deferred its shutdown decision.

Asked about this, Verster would only say that he remains positive about the ongoing discussions with Transnet, Eskom and government officials, saying that talks are “very proactive and solutions-driven”. He said ArcelorMittal would not keep its long-steel business open “based on promises”.

On Transnet, Verster wants to see the transport group deploying more trains/locomotives on its network. He did not quantify the level of increased rail capacity needed to lessen pressure on ArcelorMittal since details of the discussions with Transnet remain commercially sensitive.

“But what we know is that if they [Transnet] don’t supply us with sufficient trains, we have to substitute that by road and trucks. If we don’t get trains, we will have to stop the furnaces [which produce liquid hot metal by melting iron, which is later transformed into different versions of steel].”

In the medium-to-long term, ArcelorMittal also wants the economy to grow by at least 1.8% every year and the government to embark on large-scale infrastructure projects — both events which could spur steel demand.

But this isn’t happening at the moment.

ArcelorMittal has been battling with a 20% decline in demand for long-steel products (which includes wire, rods, railway tracks and bars) over the past seven years.

Underscoring the decline is that SA has a crude steel manufacturing capacity of between eight million and nine million tonnes. However, steel demand stood at only five million tonnes. Of this demand, ArcelorMittal supplied about 2.8 million tonnes in 2023.

Industry-wide labour challenges

On the upside, ArcelorMittal is not contending with labour stability problems.

Last year, the company entered into a three-year pay rise agreement with workers. For the first and second years (2023 and 2024), the agreement affords workers a 6.5% increase, while year three will see an increase in line with inflation.

ArcelorMittal forged ahead with implementing a 5.6% increase in April — a compromise that the company asked workers to embrace.

ArcelorMittal’s peers in the steel and engineering industries are facing even higher pay rise demands at the Metal and Engineering Industries Bargaining Council, where employers, workers and their trade unions negotiate the terms of employment.

At this council, trade unions have pitched their demands at between 7% and 12% for 2024. The final round of negotiations at the council is set to be held on 8 May 2024, when trade unions and employers will have to sign a new pay rise agreement that replaces the existing one, which expires on 30 June 2024.

ArcelorMittal is not part of these negotiations because it signed the three-year pay deal, which still has another two years to run.

The National Union of Metalworkers of SA, the biggest trade union in the steel industry, is unwilling to embrace a compromise, saying above-inflation pay rise demands were justified considering the financial pressures that workers faced as a result of a high inflation environment.

Read more in Daily Maverick: High noon for tense pay rise talks in SA’s struggling steel industry

If ArcelorMittal decides to keep its long-steel operations open, big investment plans are in the offing. These include ArcelorMittal reducing its reliance on Eskom by making investments in renewable energy sources, as part of its 2030 decarbonisation plan. This entails the company building a 200MW renewable energy facility at its Vanderbijlpark plant, making use of the land available.

Werner Venter, the chief technology officer at ArcelorMittal, said the renewable energy facility will power its factories and reduce Eskom-related electricity costs and ArcelorMittal’s emissions.

“We are hoping to break ground on the project in 2024. There are already permit, environmental and local authority approvals. We are just waiting for a grid connection from Eskom,” said Venter. DM

The writer visited ArcelorMittal SA’s steel operations in Vanderbijlpark. The trip was arranged and sponsored by ArcelorMittal.

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Needed reforms

Industry-wide labour challenges