Amsa demands action on Transnet, policy issues after deferring longs shutdown

ArcelorMittal South Africa has deferred the closure of its Newcastle, Vereeniging steel mills by six months. Photo: Supplied

ArcelorMittal South Africa has deferred the closure of its Newcastle, Vereeniging steel mills by six months. Photo: Supplied

Published Feb 9, 2024


ArcelorMittal South Africa (Amsa) has deferred the closure of its Newcastle, Vereeniging steel mills by six months, but will revert to its original decision to shut down the longs steel businesses if there is no progress in government commitments to fix Transnet, other infrastructure and policy framework bottlenecks.

Amsa, which yesterday posted a headline loss of R1.8 billion for the full year ended December 2023 against a profit of R2bn in the year earlier, announced yesterday that it had agreed to postpone the shutdown of its longs steel mills at Newcastle and Vereeniging by six months.

This followed a series of meetings and engagements with the government, labour, suppliers and other key stakeholders.

The deferral of the wind-down of the longs business will enable the division to continue operating and allow the company and stakeholders such as the government to make “progress, conclude and secure benefits” arising from short, medium and long term interventions to prevent the closure of the business units.

The Department of Trade, Industry and Competition yesterday welcomed the announcement by Amsa to defer a decision on the future of the Newcastle steel Plant, which it said offered immediate relief to more than 1500 workers and to downstream customers who relied on long-steel products from the factory.

“The expected improvement in infrastructure spending, coupled with turnaround plans on transport logistics and commencement of trade under the African Continental Free Trade Area, will all play a positive role in strengthening both demand and supply side challenges in line with the objectives of the steel master plan,” the department said.

However, Amsa CEO Kobus Verster told a media briefing yesterday that the company is prepared to revert back to its original decision to shut down the longs manufacturing division if commitments made by the government were not met.

These include fixing the policy framework and cajoling Transnet to improve its capacity for rail. The steel industry is heavily reliant on ports and rail, but with Transnet struggling to meet capacity, many steel manufacturers have encountered delays while others have resorted to using trucks.

“There will be regular interaction with the parties to see if these (interventions) are being realised and to the extent that they are not we will adjust our time-lines and we will revert back to our original decision. If we realise what’s on offer, the longs business included is better than on a stand alone model,” said Verster.

Other South African steel manufacturers were also highly critical of government policy on the industry yesterday.

Ludovico Sanges, the managing director for Duferco Steel Processing told Business Report in an interview yesterday said that policies under the Department of Industry, Trade and Competition currently “favours primary steel” producers while creating an “uneven playing in the SA flat steel” market.

“Amsa’s longs products did not survive against mini mills that was favoured by the PPS (Price Preference System) and export ban, it is thus only logical that Duferco will suffer the same fate unless the government comes to their senses and give re-rollers such as Duferco and Safal, exemption of the duties on the hot rolled imports they have been requesting since 2019,” said Sanges.

Verster singled out Transnet for its inefficiencies in handling logistics and transport and underscored that the state-run entity needed “to become more competitive” in the shortest period of time. However, he did not think that Transnet “can fix the gap immediately” although Amsa had identified a “pathway” to solving the parastatal’s crippling constraints.

Amsa yesterday reported a per share loss of 352 cents after suffering impairment charges of R2.1bn on the longs steels businesses. This compares to the previous year’s earnings of 236 cents per share while the 2023 headline loss of R1.8bn compares to a R2.6bn profit a year earlier.

Fixed costs for the period, however, remained flat at around R6.6bn despite inflationary pressures. This yielded an Ebitda profit before impairment of R56 million.

“ArcelorMittalSA will continue to monitor its working capital requirements over the deferral period which will extend for a period of up to six months, to ensure that there is sufficient access to liquidity,” Amsa said.

To attain this, Amsa was already in the process of “applying for an additional working capital facility up to R1 billion” which it will use to support continued operations at Newcastle and Vereeniging. During the year under review, Amsa’s net borrowings of R3.2bn were above R400m higher compared to a year ago.

“The high cost of doing business in South Africa, especially considering rail and road logistics, energy costs, labour and security, low business confidence with electricity unreliability impacting market activity and demand. And then we are still seeing limited infrastructure spend in a lot of project delays,” explained Verster.