ArcelorMittal SA's announcement in November 2023 of its intention to close a plant that produces long steel products at the end of January 2024 prompted a backlash from manufacturers that depend on specific steel types.
The International Steel Fabricators of SA (ISF) and companies in the downstream steel industry have warned that much of SA's manufacturing industry will evaporate due to government intervention that favors small-scale steel mills that remelt scrap metal to make steel. I am concerned that this may be the case.
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Listen/Read: South African steel sector warns of mass hiring
Niels van Niekerk, CEO of ISF, declined to say that the quality of the steel coming out of the small electric furnaces was poor, and said that this used steel could not be used in certain critical applications, such as in the automotive industry. hinted that it was not safe.
“This steel is sufficient for domestic use, such as security bars, fences made of small round steel, flat steel and angle iron. For construction, automotive, mining and anything else that requires certified materials. is not enough.
“These factories are aimed at the informal and household markets,” Van Niekerk said.
“Safety is typically very important for automotive steel parts. Automotive industry organizations require that changes in composition or supply chain require thorough testing of new steel parts before approval, and short-term changes in input materials. It recommended that any changes be prohibited.
“These changes typically take over a year. Where possible, the only alternative is importing.
“Some steel components of the vehicle have been developed specifically for African conditions and there are no substitutes,” he says.
domino effect
Van Niekerk warned that the domino effect of the closure of ArcelorMittal's Newcastle and Vereeniging plants, which produce long steel products, includes an expected increase in finished goods imports to replace locally manufactured products. are doing.
Read: The collapse of SA’s steel master plan and the collapse of the industry
Users of the soon-to-be-closed plant's products include construction, automotive, mining, electrical technology, power transmission, aviation and defense, rail, wire, fasteners, concrete reinforcement, cladding, roofing, rail, and more.
Most of these are completely dependent on ArcelorMittal, the only local producer able to supply the majority of the required long product steel input.
“This decision created a steel shortage; [to close the plants] This will lead to an almost immediate closure of industries dependent on the supply of long steel from ArcelorMittal, followed by the suspension of production at many downstream plants in a wide range of dependent sub-industries,” Van Niekerk said. To tell.
Preferential price
ISF convened a summit of industry stakeholders, including ArcelorMittal, in January 2024 to discuss the impact of the factory closures and appeal to governments to come to their senses and find solutions to keep factories open.
Read: ArcelorMittal to cut 3,500 jobs in South Africa as growth slows
ArcelorMittal has suggested 3,500 direct jobs will be lost, while the industry group expects a further 30,000 jobs to be lost “immediately”, including those working in suppliers to the factory.
Based on Seifsa estimates that the steel industry employs 270,000 workers, up to 100,000 more workers could face job loss if downstream operations begin to fail.
The ISF said ArcelorMittal was in trouble due to a government policy that forced scrap metal dealers to sell scrap metal to small and medium-sized steel producers at a discount of 30% to 40% off world prices. He explains that he is depressed.
This resulted in ArcelorMittal losing volumes since the introduction of the scrap price preference scheme (PPS) in 2013.
The purpose of the policy is stated as “export controls to ensure an affordable supply of high-quality scrap metal, protect jobs, and promote infrastructure development.” The policy, which required scrap to be provided to local scrap smelters at a 30% to 40% discount on international prices, was to be in effect for five years.
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Despite evidence that policy interventions had failed to achieve the desired results by 2016, and indeed some parts of the scrap processing industry had experienced significant decline, leading to closures and job losses. After 10 years, PPS is still in force and many new initiatives are being implemented. Thanks to the support of PPS, entrants were attracted to the scrap smelting industry.
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Additionally, the government has actively supported these small factories with billions of dollars in funding.
“Industrial Investment Corporation (IDC)’s current investment exposure in the scrap smelting industry is said to be over R14 billion, with an additional R33 billion added in the last four years. Three of the former scrap smelters have gone into liquidation, received business rescue measures, or closed their operations,'' the ISF said.
A plea for a level playing field
ArcelorMittal said in a November 2023 announcement that it has begun the process of winding down its long steel business.
The report cited current low market demand and domestic constraints beyond the company's control (such as extreme challenges in both domestic logistics and energy supply), as well as non-competitive and unequal conditions for the company relative to local companies. He cited steel-related policy decisions that create competitive conditions. competitors.
ArcelorMittal CEO Kobus Förster said in a speech at the Crisis Summit in January that his company's main demand was a level playing field, saying it would be “on par with other producers when it comes to energy and transport.” “Tariffs will be imposed'' and “existing policy interventions are needed.'' Scrap metal regulations that give local scrap-based mini-factory competitors an unfair advantage will be removed. ”
Although “best efforts” were made…
Sens' November 2023 announcement stated that the company implemented aggressive cost reduction initiatives, improved raw material cost reductions, adjusted asset footprint and implemented various other productivity initiatives. Masu.
“Unfortunately, despite best efforts, the efforts undertaken were unable to counter the combined effects of:
- “Economic downturn and difficult trade environment: Against the backdrop of South Africa's low GDP growth, over the past seven years the country's apparent steel consumption (ASC) has declined by 20% to around 4 million tonnes, reflecting weak market demand in the main steel consuming sectors. reached the level of Restrictions on infrastructure spending and project delays create overcapacity in the market and reduce overall business confidence.
- “National constraints beyond corporate control: High transport and logistics costs and high energy prices are further exacerbated by well-publicized logistics failures and their resulting cost impacts, as well as the general power challenges facing the country. .and
- “Advantages of scrap over iron ore: The introduction of a preferential scrap pricing system, a 20% export duty and, more recently, a ban on scrap exports, has enabled steel production via the electric furnace route, creating “artificial” competition when compared to steel-using steel manufacturers. Now you can get the upper hand. Ore used to produce iron. ”
volume
The problem is the decline in production due to the dire state of SA's economy, which has suppressed demand for steel products to the point that it undermines economies of scale.
The current total local long product steelmaking capacity is 4.25 million tons per year, but the current local demand is only 1.25 million tons.
ArcelorMittal's Newcastle blast furnace can produce 1.7 million tonnes a year, but only 400,000 to 450,000 tonnes of that constitutes the high-quality steel needed by listed industries.
Small-scale factories that use scrap steel to make steel attract many other customers, and the Newcastle factory cannot operate at such low output.
The electric furnace at ArcelorMittal's Vereeniging plant is barely operational.
appeal
The ISF also called on Human Settlements Minister Mmamoloko Kubai, as co-chair of the government's Economic Sector, Employment and Infrastructure Development Cluster (ESEID), to address the “urgent matter” of the steel plant closure.
“The devastating impact this will have on the county’s industrial prospects and economic fortunes will be far-reaching. The consequences of this potential development require the urgent and full attention of the ESEID cluster.
“We are aware that ESEID will be holding a work session on Monday, where the closure will also be discussed, so we have prepared the attached appeal to ESEID to prevent the factory from closing within two weeks.” and the downstream steel industry, according to a document signed by Mr. Van Niekerk on behalf of ISF and ISF.
