ArcelorMittal South Africa Shutters Longs Steel Business, 3,500 Jobs At Risk

ArcelorMittal South Africa Ltd. will shut down its Longs steel products business due to high logistics and energy costs and record low-cost steel imports from China, a move that impacts around 3,500 jobs.

The closure will affect both the Newcastle and Vereeniging Works, as well as the Amras rail and structures unit. However, a smaller coke-making operation at the Newcastle site will remain but scaled back to reflect reduced demand.

According to the official press release, the company took the wind-down decision after "sustained challenges, including weak economic growth, high logistics and energy costs, and an influx of low-cost steel imports, particularly from China."

High logistics and energy costs, along with outdated policies like the Price Preference System (PPS) and Export Scrap tax, have made the Longs Business unsustainable. These policies heavily subsidized scrap-based steelmaking, which hurt the Newcastle Works that processes South African sourced raw materials.

Despite talks with the government and other stakeholders to find solutions, there was not enough progress to prevent the closure. The company will now place the Longs Business under care and maintenance.

The ongoing overcapacity in both global and local markets, along with low international steel prices, has made the situation worse.

The Longs Business was only using 50% of its capacity, as weak market conditions forced it to run its blast furnace at the lowest possible levels.

"It is with deep regret that we must take this difficult decision. Over the past year, our employees and dedicated management team have shown remarkable commitment and resilience in the face of serious uncertainty," CEO Kobus Verster said in the statement.

Verster added, "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."

Around 3,500 direct and indirect jobs are expected to be affected, with a larger impact on jobs in the Newcastle region. A formal labor consultation process will begin soon, and the company is committed to minimizing the impact on employees and suppliers.

The company is also working to adjust its R1 billion working capital facility, secured in 2024, to help manage the transition.

Steel production is expected to stop at the unit by late January 2025, with the remaining operations winding down by the first quarter of 2025.The Longs Business wind down costs include approximately R2.7 billion in asset impairment, wind down, and severance charges.

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 ton levels in Q4 2024.

South Africa's crude steel production for 2024 is anticipated to be 2.3% lower than in 2023, 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.

The company anticipates 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, wider than previous year's loss of R1.70 per share.
Revenue for 2024 is expected to decline by more than 5% from 2023.

Meanwhile, CEO Verster said the company will focus on ensuring the sustainability and improvement of the Flats Business. It will focus on downstream industries like automotive, renewable energy, mining, and infrastructure; and affecting a recapitalization of the business to improve the balance sheet and support these investments.