Founder: Turnaround Talk
Growing up in South Africa, I heard plenty of stories about ISCOR and the significant demand for its steel as South Africa went through an infrastructure boom and provided steel to other countries – on the continent and globally – with a high demand for this critical commodity.
The company was so profitable and a significant employer that it attracted the attention of ArcelorMittal (the second biggest steel producer in the world), who eventually took the company over.
However, the company has been facing significant headwinds since 2008, when Government first implemented loadshedding. With steel production being energy-intensive, ArcelorMittal would always find loadshedding a significant bugbear. The recent bout of intensive loadshedding and Governments inability to resolve the Energy Crisis has seen Arcelor Mittals Newcastle and Vereeniging operations become a shadow of their former selves. Now, thousands of jobs are at risk as ArcelorMittal South Africa closes these two massive operations.
A major victim
The News24 article points out that ArcelorMittal South Africa is putting its major Newcastle and Vereeniging long steel operations in care and maintenance due to a lack of demand.
Long steel products include wire, rods, railway rails and bars.
The steelmaker cited high logistical and transportation costs, energy prices and load shedding as reasons for giving up the operations. This comes after years of aggressive cost cuts to save the business, which ultimately proved fruitless as South Africa’s steel consumption has declined 20% over the past seven years.
The article adds that more than 3 500 employees will be affected by the decision.
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Valiant attempts
The article points out that ArcelorMittal said it tried to save the operations by aggressive cost-cutting, increased raw material cost savings and productivity initiatives over recent years.
“Despite these best efforts, the initiatives were unable to counteract the cumulative effect of a slowing economy and a difficult trading environment,” said chief executive officer Kobus Verster in a statement. South Africa now consumes only 4 million tonnes of steel as infrastructure expenditure dwindled.
The article adds that high transport and logistics costs, as well as escalating energy prices and load shedding have added further pressure.
In addition, a new preferential pricing system for scrap, a 20% export duty, and a ban on scrap exports have given steel production via electric arc furnaces an “artificial” competitive advantage over steel manufacturers, beneficiating iron-ore to produce steel. This means scrap metal traders who recycle steel are gaining an advantage over the company’s more intense operations that consume heavy raw materials such as iron ore.
“These structural market issues are beyond ArcelorMittal South Africa’s control and do not appear capable of being resolved in the foreseeable future,” said the company.
Some glimmer of hope
The article points out that the group’s coke batteries at Newcastle, which produces metallurgical coke for use at the Vereeniging Works, will remain operative.
“The ArcelorMittal South Africa board and management have reached this point after having exhausted all possible options. As difficult as these circumstances are, we have a duty to ensure that the business remains sustainable in the long term, in the interests of the company and its stakeholders. The remaining business, after the wind down, will be substantially more profitable and able to invest the appropriate capital in product development and available growth prospects,” Verster said.
The group’s share price took a 5% hit to 130c in opening trading. Its shares are down 70% over the past year.
Further pain caused by the Logistics Crisis
The tumult caused by the Logistics Crisis is not being exclusively felt at south Africa’s key ports.
A News24 article points out that Anglo American is considering cutting jobs at two units in South Africa because of declining platinum-group metal prices and bottlenecks curbing iron ore exports, four people familiar with the situation said.
The company has held talks with the government over the potential reduction in its workforce, the people said, asking not to be identified because the matter hasn’t been made public. Senior government officials asked the company to consider delaying the cuts until after elections likely to take place around May 2024, three of the people said.
The article adds that the Congress of South African Trade Unions said that Anglo has also spoken to one of its members, the National Union of Mineworkers, about the matter.
The job cuts would be another blow to the electoral prospects of President Cyril Ramaphosa and his ruling African National Congress. Anglo is already in the midst of plans to slash corporate and head office jobs globally, with many of those positions in South Africa. The company joined other mining behemoths in posting a steep drop in first-half profit as China’s economic slowdown damped earnings.
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The article points out that Anglo American Platinum — about 79% owned by London-based Anglo — is contending with a 14% fall in the price of platinum this year and a 41% plunge in palladium, a valuable byproduct. Rival Sibanye Stillwater Ltd. said in October that it may fire more than 4 000 platinum workers.
Kumba Iron Ore, owner of South Africa’s biggest iron ore mine and a 70% subsidiary of Anglo, said third-quarter iron ore sales fell 12% from the year earlier, largely because of the poor performance of state ports and freight rail company, Transnet. The company is almost out of storage space for the ore it has mined and can’t rail it, one of the people said.
Added pressure
The Energy and Logistics Crises are adding mounted pressure on Government to find a quick solution to debilitating problems.
Will the inability to address these crises translate into decreased support at the 2024 General elections? If it does, will South Africa’s new leadership have the answers to these problems? Time will tell.
