Top South African company cuts 3,500 jobs

Despite previous green shoots, the recovery in South Africa’s steel industry was short-lived, and now one of the country’s biggest producers has decided to wind down its longs business.

ArcelorMittal South Africa said in a SENS announcement on Monday, 6 January, that it plans to wind down its longs steel business due to challenges in the local steel industry.

This comes after an announcement late last year that the company saw signs of recovery. In November 2023, ArcelorMittal announced its decision to place its longs business into care and maintenance.

The company cited prolonged weak economic conditions, logistics and energy challenges, and unsustainable competition from low-cost imports as reasons for its decision.

However, stakeholders raised concerns about the potential loss of high-quality local steel production and the socioeconomic impacts on Newcastle and its surrounding communities.

Therefore, ArcelorMittal South Africa worked extensively with the government to explore alternatives.

In August last year, the company said it remains steadfast in its plans to save 3,500 direct jobs and 80,000 more across the value chain by keeping its longs business alive.

The steel producer said it saw green shoots appearing in the country’s economy, specifically the manufacturing sector.

For example, manufacturing production increased by 5.3% year-on-year in April and by 5.2% month-on-month in April compared with March. 

“This marks the largest monthly increase since August 2021. The absence of load-shedding, depending on its sustainability, should further contribute to the improvement,” the company said. 

“The increase in power generation in recent months, coupled with the renewable energy projects scheduled to come on stream over the next two years, suggests that the drag on economic growth caused by the electricity shortage should gradually diminish, facilitating structurally higher production levels.”

However, on Monday, the company said that initial signs of recovery in international steel prices were short-lived.

In addition, despite implementing significant cost-cutting and cash management measures, the financial outlook for Q4 2024 remained extremely challenging.

Consequently, ArcelorMittal’s expected financial performance for the 2024 financial year against 2023 will be substantially weaker.

“ArcelorMittal South Africa has been working intensively on this issue for over a year,” the company said.

“The company is at a point where any further delay could affect the sustainability of the company, and therefore, a decision cannot be pushed back any further.” 

“The board and management of ArcelorMittal South Africa have a fiduciary and legal duty to ensure that the overall business remains sustainable in the longer term.”

Therefore, the company announced that it has no option but to proceed with the wind-down of its longs business. The business will be placed into care and maintenance.

This will have severe consequences for South Africa’s steel industry, as ArcelorMittal is the largest steel producer on the African continent.

In its announcement, the company confirmed that one of the wind-down’s unfortunate implications is that jobs and enterprises will be negatively impacted.

The wind-down will impact all long steel plants, including the Newcastle Works, Vereeniging Works, and the rail and structures subsidiary, AMRAS. 

Regarding jobs, the company will commence a consultation process under Section 189 of the Labour Relations Act. 

It said a notice under the Labour Relations Act would shortly be issued, and a large-scale retrenchment was contemplated.

The final number of retrenchments is not yet certain, but it is envisaged that approximately 3,500 direct and indirect jobs may be affected.

Steel production is anticipated to cease by late January 2025, and the winding down of the remaining production processes will be completed in Q1 2025. 

However, it said Newcastle’s coke-making operations will continue, though scaled back to reflect reduced demand.

In addition, ArcelorMittal said it remains confident that the remaining business can be successfully restructured to be competitive, sustainable and profitable.

“As a company, we are disappointed that all our efforts over the last year have not translated into a sustainable solution,” said CEO Kobus Verster. 

“The issues tabled for resolution sought to level the playing field against international and local competitors.” 

“The issues raised outlined those factors that could have, and still can, firmly address the structural problems within the South African steel industry, especially for our Longs Business, but also within the company, the South African steel industry and value chain.”

“We had hoped that matters would not have come to this conclusion at a time when our country can ill afford job losses and the further erosion of industrial capacity.”