Deferring closure of SA steel factories is no election ploy, says ArcelorMittal boss

8 Feb 2024

Last year, ArcelorMittal South Africa announced that it planned to shut down its steel manufacturing plants in Newcastle and Vereeniging. This would put 3,500 jobs at risk. The company has now deferred the decision by six months.

Politics and fear of ruffling the government’s feathers during an election year were not behind ArcelorMittal South Africa’s decision to defer for six months the closure of its loss-making steel operations, which will lead to 3,500 job losses.

This is according to ArcelorMittal CEO Kobus Verster, who said the decision to not immediately close its long steel operations in Newcastle and Vereeniging was informed by wanting to see if the situation around South Africa’s economy, the electricity and logistics crisis improves.

“I don’t think we would be bullied into making an announcement that we are not comfortable with,” said Verster during a briefing with journalists on Thursday about ArcelorMittal’s financial results. He added that deferring the winding down of ArcelorMittal’s steel operations by six months would give the company space to find ways of preventing the closures.

Verster has been in negotiations with the government, Eskom, Transnet and labour representatives on finding ways to avoid the closure of operations in Newcastle and Vereeniging. The operations produce long steel products, which include wire, rods, railway rails and bars that are usually used in construction projects.

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

Positive discussions, no election ploy

Verster said the discussions with affected parties had been “positive”, with widespread concerns shared about the negative consequences that would arise if ArcelorMittal were to press ahead with the closure of the steel operations.

He dismissed suggestions that ArcelorMittal was co-opted by the government into the six-month-long deferral as part of an election ploy and to push a more positive narrative about South Africa.

In recent months, organised business has come under fire for partnering with the government on initiatives to fix the electricity and logistics crisis, and the scourge of crime and corruption — problems that are dragging down the economy.

Read more: ‘Frustrated and anxious’ business leaders step up to help SA fix energy, transport and corruption crises

In doing so, organised business has been accused of pushing a positive spin by lauding the government for its commitment to fixing problems that it engineered in the first place, and have persisted without interventions for more than a decade.

Following his discussions with the government, Transnet and Eskom officials, Verster said there appeared to be a commitment from all parties to fix crippling problems, especially in the logistics crisis. Transnet’s leadership, which he said had shown a “firm intent to cooperate”, promised to implement short-term “port and rail service” measures to improve efficiencies, which could pave the way for ArcelorMittal not to permanently close its steel operations.

Transnet, Eskom impact

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.

Transnet’s problems have contributed to ArcelorMittal reporting a R1.89-billion loss during the 12 months ending December 2023, from recording a profit of R2.6-billion in 2022.

During the latest reporting period, ArcelorMittal suffered from what it calls “abnormal costs”, which amounted to R750-million — R580-million of which were caused by the dysfunctionality of Transnet. Ongoing cable theft at ArcelorMittal’s assets contributed to the costs (about R110-million) and about R60-million was incurred in security measures to reduce incidents of theft and crime.

Eskom blackouts also negatively affected ArcelorMittal’s steel production process. Higher stages of Eskom blackouts mean that its factory in Vanderbijlpark is at times asked by the power utility to embrace load curtailment for eight hours a day. Load curtailment happens when Eskom asks big businesses and industries to reduce the use of electricity when the power system is under pressure. In 2023, ArcelorMittal received 51 load curtailment instructions from Eskom, up from eight in 2022.

Fixing Transnet and Eskom will not happen overnight. The problems around the companies are likely to persist for years. However, ArcelorMittal is kicking the can down the road in the hopes that structural, economic and political problems in South Africa are alleviated, without any guarantees at present. Verster said there was a “decent shot” at salvaging the businesses. DM

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Positive discussions, no election ploy

Transnet, Eskom impact