Important South African company fighting for survival

ArcelorMittal’s South African unit said it is considering a rights issue to recapitalize the cash-strapped business, triggering a plunge in its stock. 

ArcelorMittal South Africa’s shares fell as much as 15% and were 13% lower at 97 cents by noon in Johannesburg on Thursday. 

The company, known as AMSA, announced plans to shutter two loss-making mills and another unit in January. It said high power and rail costs, inadequate tariff protection against imports, and discounts on scrap prices that it says advantage its competitors made those businesses unprofitable. 

The decision drew pleas from the automotive industry, mining-equipment manufacturers and steel fabricators for the government to intervene.

They argue the plants, which also supply construction steel, are key to the health of their own operations as imports would be too costly and less reliable.

On Thursday, Amsa said it would delay the planned closures until the end of February and that talks with the government over the future of its so-called long steel business are ongoing, with an announcement expected in coming weeks. 

“Electricity is too expensive in South Africa, rail tariffs are too expensive in South Africa, safeguards are not good enough, the scrap discount given to competitors is unfair,” Kobus Verster, AMSA’s CEO, said at a presentation.

“You need to address the structural issues, or it’s a short-term solution.”

Newspaper reports of a financial bailout from the government were inaccurate and no “serious” offers had been received for the company’s assets, he said, adding that the plants will need financial support to remain open and that won’t come from the company.

The closure of the Newcastle and Vereeniging steel mills, which have operated for 50 years and a century, respectively, would be an impediment to South African President Cyril Ramaphosa’s plan to kick-start a R4.8 trillion infrastructure drive. 

Verster laid out an array of investments the company could pursue once it stops haemorrhaging money from the unprofitable units.

They include a 1.5-million-ton electric-arc furnace, a 200-megawatt solar-power plant to reduce electricity costs and reopening the idled Thabazimbi iron-ore mine in 2027.

The company could also start producing so-called green direct-reduced iron for export from its shuttered Saldanha steel milling using hydrogen by 2030, he said.