ArcelorMittal South Africa faces R5.1bn loss amid longs division closure talks
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An ArcelorMittal steel foundry. The company is hoping that financial or policy support from the government will prevent the close of its Longs division. Photo: Supplied
ArcelorMittal South Africa’s (Amsa) R5.1 billion headline loss has widened massively from last year’s R1.89bn loss and its longs division will likely close in a month unless the government supports it financially, industry sources said Thursday.
Amsa, 68% owned by Luxembourg-based global group ArcelorMittal, had planned to shutter its longs division at the end of this month, but this has been delayed by a month as talks continue on further support from the government, and following a R380 million shareholder loan from the Industrial Development Corporation (IDC).
Amsa said another reason for the delay in closing the longs division, which would result in some 3 500 job losses and would severely impact the steel fabrication sector, such as the automotive industry, was the need to fulfil a higher than anticipated outstanding order book.
Harald Vermaak, the CEO of Networth Investments, that made a R19bn leveraged offer for Amsa that was rejected by its majority shareholder, said the financial losses, debt, and support already provided by the government meant there was little chance that Amsa’s longs division would remain open after a month.
“The only solution is for the government to buy the controlling stake and on-sell it. I think ArcelorMittal’s plan B is to wait until the closure, then make its steel available in South Africa from its other Longs business in Brazil,” he said.
Eliminating the costs and losses in South Africa would allow the global group to compete more effectively with Chinese producers, he said. An online search by Business Report showed ArcelorMittal’s steel production in Brazil is 15.5 million tons a year, while Amsa’s is only 2.6 million tons a year.
Vermaak said the higher-than-expected order book was likely due to major buyers, such as the automotive industry, stocking up ahead of the closure and to provide a buffer before they source other imported sources of steel.
Amsa CEO Kobus Verster said: "The South African steel industry is at a critical juncture, facing unprecedented challenges from global market dynamics and trade practices, as well as domestic policy issues. We are actively engaging with the government and key stakeholders to implement urgent interventions needed to address the decline in this strategic sector and reposition it for growth."
Donald MacKay, XA International Trade Advisors founder, said the problems at ArcelorMittal had more to do with the over-subsidisation and over-capitalisation of the mini-mills in South Africa by the government, than imported steel from China. For example, two-thirds of the IDC’s portfolio of companies in business rescue were mini-mills.
Also, when South Africa joined the BRICS (Brazil, India, China, Russia) trade grouping, it signed away its ability to act against dumped imports, such as agreeing to no more countervailing duties on Chinese exports, said MacKay. He said Amsa would require a large capital injection from the government if the longs division was retained.
Verster said, despite these challenges, the company has maintained its commitment to operational improvements through its Value Plan, which delivered R910m in benefits during 2024. The company also reported improved asset utilisation in its flats business during the second half of 2024, with crude steel production levels increasing by 12%.
Amsa said its talks with the government are likely to yield an announcement in the second half of this month. South African steel makers are already protected with import tariffs of 5%-15%, and imports of galvanised steel rolls from China were slapped with a big temporary 52.8% tariff in November, while a fuller investigation into alleged dumping is underway.
Amsa’s Verster said, however, in terms of market conditions in 2024, steel imports into South Africa reached their highest recorded levels, accounting for 33.6% of the country's steel consumption. “This represents a significant challenge for domestic producers,” it said.
In its financial results for the year to December 31, it also said that international steel prices remain depressed and countries had rushed to protect their steel industries against unfair trade and policy practices.
In the second half of the year, Amsa’s crude steel production levels were up 12% due to improved asset utilisation in the flats business.
Sales volumes fell 6% to 2.3 million tons - crude steel production was down 6% to 2.6 million tons for the full year.
The realised rand steel prices fell by 4%. Fixed costs were up 2% to R6.78bn in support of additional maintenance and environmental costs.
Operational Ebitda (earnings before interest, tax, depreciation, and amortisation) loss - before the longs business wind down charge, severance packages charge, and the write-down of inventory – of R1.82bn included R670m of losses relating to blast furnace instability in the second half, and R1.51bn of inventory disposal losses in support of improved liquidity.
The operational Ebitda loss (before wind down and impairment charges) for the longs business amounted to R1.1bn from a R0.6bn loss in 2023.
The longs business wind down charge, severance packages charge, write-down of inventory, and impairment would come to R1.81bn, compared with R2.12bn of impairment charges in 2023.
Verster said their strategy for the next five years focuses on four key pillars: safety, strengthening core business operations, executing high-payback projects, and positioning for future growth through high-quality products and value-added markets.
Certain projects in the high-payback investment portfolio include a 1.5 million ton electric arc furnace at Vanderbijlpark, a blast furnace gas recovery plant to increase electricity self-generation, and a new galvanising and Magnelis line to introduce superior coating technology for the Southern African market.
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