South Africa

Dark clouds gather over 13,000 South African jobs

Carmakers in South Africa are imploring the local unit of ArcelorMittal and the country’s trade minister to work together to delay the planned closure of steel mills this month. 

Associations representing both automotive component makers and car manufacturers — including Volkswagen and Toyota — said in near-identical letters seen by Bloomberg that they need at least a year to source alternative steel supplies.

Shuttering the steel mills could result in plant closures and job losses in their industries, they said. 

ArcelorMittal South Africa, or AMSA, on 6 January said it would close mills that produce so-called long-steel products in the towns of Newcastle and Vereeniging and a rail-fabrication facility in eMalahleni because it couldn’t make them profitable.

The operations are the only local suppliers of a number of products used in industries ranging from construction to mining and carmaking. 

The associations “on behalf of their members, therefore, urgently make an appeal to the Department of Trade Industry and Competition to support AMSA in finding at least a transitional solution,” they said in the letter to Trade Minister Parks Tau.

This is needed “to avoid auto-sector disruptions and the severe threat of de-localization and, ultimately, de-industrialization,” they said. 

AMSA said CEO Kobus Verster was copied on the letter sent to the trade minister but wasn’t aware of a letter sent directly to the company.

A team from the country’s economic cluster of ministries is doing ongoing work on AMSA, said Yamkela Fanisi, a spokesman for the minister.

They are “working day and night on AMSA, and AMSA is involved,” he said, confirming that Tau received the letter from the auto associations. He said an announcement will be made when talks with Amsa reach a conclusion.

The Automotive Business Council — also known as Naamsa — didn’t respond to a request for comment on the letter.

“The absence of this reliable local steel supply could lead to line stoppages, plant closures and volume cuts, jeopardizing both the sustainability of component suppliers and original equipment manufacturers,” National Association of Automotive Component and Allied Manufacturers CEO Renai Moothilal said in a statement sent to Bloomberg. He confirmed the authenticity of the letters. 

Steel imports could be 25% more expensive, he said. The impact on local supply chains could see 3,000 jobs lost immediately and 13,000 jobs lost over time, Moothilal said.

The auto industry employed more than 116,500 people directly last year.

AMSA, which produces steel from iron ore, had initially announced plans to close the operations about a year ago before putting that decision on hold in July.

The company said the businesses are unviable because of poor rail service, high electricity costs, a flood of low-cost imports and government policy that keeps the price of steel scrap — used as a raw material by AMSA’s smaller rivals — artificially low.

In the letters to AMSA and the minister, the associations said that their industries used 70,000 tons of “speciality long-steel grades” annually that can only be supplied locally by the company. 

They said they hadn’t been given time to find alternative sources through imports, and a change in steel suppliers would result in a round of length, stringent testing, and approvals. 

That would likely see them using already-approved parts from suppliers outside South Africa, damaging the local car-spares industry, they said.

“Localized parts will be delocalized for a significant duration,” they said in the letters. 

The automotive industry accounts for about 5.3% of South Africa’s gross domestic product, and cars and auto components account for 15% of exports. Stellantis, Ford, Mercedes-Benz, BMW and Isuzu also make cars in South Africa.

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