Government was warned about steel industry collapse

The government received a report in February 2021 outlining the challenges facing the steel industry ArcelorMittal cited as reasons for winding down its longs steel business in South Africa.

This was revealed by the Don Consultancy Group (DCG) chief economist Chifi Mhango, who said ArcelorMittal’s wind-down does not bode well for the South African industrialization agenda.

Mhango’s comments come after ArcelorMittal South Africa (AMSA) announced on Monday, 6 January, its decision to proceed with the wind-down of its long steel business.

In the steel industry, “longs” refer to steel products such as bars, rods, and beams, primarily used in construction and infrastructure projects across key sectors like rail, mining, and energy.

The announcement sent shockwaves through the local steel industry, as AMSA’s decision is expected to result in at least 3,500 job losses and significant disruptions to supply chains.

AMSA initially revealed its plans to shut down the longs business in 2023, attributing the decision to prolonged weak economic conditions, logistical and energy challenges, and unsustainable competition from low-cost imports.

Hopes for a reversal arose in 2024 when AMSA indicated signs of economic recovery in South Africa, particularly in the manufacturing sector. 

The company engaged extensively with the government to address the industry’s challenges, aiming to safeguard the 3,500 direct jobs under threat.

However, in its latest announcement, AMSA stated that the initial signs of recovery in international steel prices were short-lived and that its financial position had further deteriorated.

“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.” 

As a result, AMSA confirmed it has no choice but to proceed with the wind-down of its longs business, which will be placed into care and maintenance.

The company acknowledged the decision’s negative implications, including job losses and impacts on associated enterprises. 

While the exact number of retrenchments remains uncertain, AMSA estimates approximately 3,500 direct and indirect jobs could be affected.

Justin Corbett, CEO of Rand York Casting, warned that the ripple effects of AMSA’s decision could jeopardize far more jobs in South Africa. 

Speaking to Newzroom Afrika, Corbett emphasized that the 3,500 job losses represent only the immediate impact.

“We expect in the short-term to lose an additional 50,000 jobs in South Africa and, in the medium-term, at least 100,000 jobs,” he said. 

In the wake of this blow to South Africa’s steel industry, many have accused the government of not doing enough to prevent the closure of AMSA’s longs steel business.

ArcelorMittal CEO Kobus Verster reportedly said, “The government is willing to listen but unable to make decisions. Could the government have done more? Of course, that is my view.”

In a statement released on 8 January, the Department of Trade, Industry and Competition (DTIC) said it “notes with serious concern” AMSA’s announcement to wind down its longs steel business.

“In fulfilment of its mandate to work with the private sector in growing the local economy, the DTIC remains committed to working with AMSA to find a workable and lasting situation,” it said.

“During the course of 2024, AMSA had reached out to various government departments and state-owned entities with requests for different concessions for its business.”

“It has always been, and continues to be, the intention of the government to continue these engagements until a workable resolution to the problems faced by AMSA and the steel industry is reached.”

In a recent press release, Mhango, who served as AMSA and the Steel and Engineering Industries Federation of Southern Africa (SEIFSA)’s chief economist for years, said his role at the time involved engaging with the government’s various departments at the highest level to bring areas requiring policy intervention to their attention.

“It saddens me that we must reach a point where South Africa will now have a reduced capacity to produce long steel products,” he said.

“The news this week of ArcelorMittal SA closing its plants that produced long steel products in Newcastle Works and Vereeniging will affect around 3,500 direct jobs, something which, as a country, we cannot afford.” 

He further revealed that, in February 2021, SEIFSA released a publication clearly outlining the industry’s challenges across various economic variables.

The report was titled ‘A Sector in distress: Effective Government policy support is essential for the recovery of the sector’ and included production trends, capacity utilisation, employment, investment, and trade trends, among others. 

“In the publication, we had a full Chapter 12 outlining policy interventions required to save the steel and engineering sector as per each challenge faced by the steel industry,” Mhango explained.

“This report was submitted to the highest level in SA National Government and/or departments, Provincial Governments where ArcelorMittal SA plants are located, including to the management of key institutions such as Eskom and Transnet, to reflect on the challenges facing the industry.”

He pointed out that the government’s efforts in finalizing the South African Steel and Metal Fabrication Master Plan 1.0 in June 2021 incorporated some of SEIFSA’s suggested areas of policy interventions. 

However, they “seem not to be bearing fruit if one reflects on the reasons behind ArcelorMittal SA’s decisions, which are the very same challenges we presented in our February 2021 State of the Metals and Engineering Sector report.”

Mhango said South Africa’s loss of the capacity to produce its own steel could be equated to outsourcing its military defence capability. 

“The steel industry, by its very nature, is strategic. Hence, all premises or plants of ArcelorMittal SA are regarded as national key points,” he said.

Mhango questioned whether South Africa, with the much-needed infrastructure development that requires steel, can afford to lose its steel production capacity while also eroding its employment figures. 

“What does this mean for our much-talked-about mineral beneficiation industrialisation agenda?” he asked.