Important South African employer stuck in a death spiral

ArcelorMittal South Africa (AMSA) has been placed in a vicious cycle by the measures the government has introduced to protect the company, as they have eroded demand for local steel and pushed customers towards cheaper imports. 

The company confirmed this week that it will shut down its long steel business by the end of September 2025, indirectly threatening 100,000 jobs in South Africa. 

It said that without further financial support, the business will not be able to survive. The shutdown has been planned since 2023, with only government intervention keeping it alive. 

However, government intervention and protection of the company may be the reason why it has struggled to keep its long steel business alive. 

National Employers’ Association of South Africa CEO Gerhard Papenfus said the company’s main issue is its inability to produce cheap, high-quality steel. 

A steel producer like this is vital for any country’s economy, forming an essential piece in the puzzle of industrialisation and economic growth. 

The government has traditionally supported heavy industry in South Africa through financial assistance, preferential tariff structures for basic services, and efficient access to the country’s ports. 

This has changed with Eskom and Transnet’s deteriorating performance. This has not only hindered the operations of heavy industry but also significantly increased costs. 

South Africa’s electricity prices have risen by over 500% in the past decade, significantly increasing the cost of operations for heavy industry. 

On the other hand, Transnet’s inefficiencies have prevented heavy industry from bringing its products to market and hampered access to supplies needed to manufacture them. 

AMSA has borne the brunt of these challenges, with the company set to shut down its long steel business as it is no longer commercially viable. 

Since announcing plans to close the business in 2023, the government has stepped in to help the company keep the longs unit alive. 

Its closure is expected to result in at least 3,500 direct job losses and significant disruptions to supply chains, with around 100,000 jobs indirectly affected.

As such, the government stepped in to try to save the longs business, providing it with billions in loans and working capital. 

Since June 2024, AMSA has received a R1 billion working capital facility from the Industrial Development Corporation (IDC), a R380 million IDC and government shareholders’ loan, another R1.68 billion IDC facility, and R417 million UIF funding. 

The company also benefits from extensive and steadily increasing import and safeguard duties, to protect it from cheaper imports. 

Government is hindering, not helping

The government has introduced significant measures to protect AMSA’s long steel business, in the hope of keeping it alive and protecting thousands of jobs. 

However, these measures, particularly import and safeguard duties, may be the reason the company cannot sustainably operate its long steel business. 

Papenfus said the steel industry and AMSA’s role in it have steadily deteriorated due to the restrictions these government measures have created. 

In particular, these measures prevent AMSA and others from accessing affordable steel, driving down costs and making its products competitive. 

AMSA has pointed to weak local steel demand and consumption, coupled with cheap imports from Asia, as a major contributing factor in its business’s downfall. 

However, Papenfus said the company has failed to admit why it cannot supply steel and steel products at an affordable price for the South African market. 

This, coupled with the increased import duties on cheap imports, has prevented South African industry from accessing steel, pushing down demand for AMSA’s products. 

These measures, alongside vastly more expensive electricity, have eroded demand for steel in South Africa as heavy industry is no longer economically viable under these conditions. 

Thus, while these protectionist measures have kept AMSA alive, they have simultaneously eroded its customer base, decreasing its chances of survival. 

Papenfus said it is clear that AMSA cannot survive without downstream businesses using its products, and downstream companies cannot survive without AMSA under the current regime. 

“The longer the AMSA corpse is propped up, the quicker the downstream will wane. So, the longer it takes for the inevitable to realise, the less of the downstream will survive,” he said. 

For the steel downstream to survive, let alone prosper, it needs a reliable provider of affordable, high-quality steel.

The industry will have to adapt alongside the government to increase access to cheap steel imports, because AMSA is no longer a long-term option for industry. 

In any event, the mini-mills will remain, which will, at least to some extent, fill the gap left by AMSA’s absence. The remainder can be made up through imports. Papenfus said the steel downstream would survive without an AMSA.