ArcelorMittal crisis: Jobs at risk, urgent government intervention needed

South Africa’s largest steel producer ArcelorMittal SA (Amsa) is looking at ways to survive after losing R466 million in the third quarter.

Amsa told its shareholders on Wednesday that one of the reasons for the loss is the deterioration in global and local steel markets.

The steel producer said thousands of jobs at the company, and at the steel industry as a whole are in trouble, and urgent government intervention is needed before the worst happens.

ArcelorMittal financial results

Other impacts that have negatively affected the company’s financial results include the high energy and logistics costs.  

The company notes that interventions have been implemented, however, national and market constraints remain. For Q3 2023, the company made a profit of R52 million, compared to this year’s significant loss.

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ArcelorMittal results for first half of 2024

In the first half of the financial year, Amsa’s results were negatively impacted by difficult local and regional trading conditions, and by the direct cost of operational interruptions of the two blast furnaces at Vanderbijlpark.

“At the time of releasing our interim results, the evaluation of the outlook for the second half of the 2024 financial year (H2 2024) included anticipation of an improved environment for demand and pricing sentiment, boding well for a gradual recovery.”

Accordingly, Amsa expected the financial performance for the second half of the year to be reflective of the underlying business performance, as the company anticipated returning to profitability despite demand and price pressure.

Steel demand remains weak

Amsa said demand remains weak in the country, and the market distortions that contributed to the 2023 decision to wind down the Longs Business continue to provide an unsustainable and unfair advantage to scrap-based producers.

“This is despite the company having implemented substantial cost-cutting interventions to ensure its sustainability, as the national and market constraints present a significant hurdle to overcome.”

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Longs Business

Amsa added that it took the necessary steps to avoid the longs business being closed, as the closure will have effects such as a negative impact on the downstream, direct and indirect job losses.

Despite necessary measures being implemented by the company, longs business continues to operate at a loss. Longs business posted a R512 million loss.

The steel producer stresses that if these issues are not addressed urgently, it is only a matter of time before the entire business is at risk.

“A viable and sustainable primary steel industry has the potential to make a significant contribution to national priorities, including employment and the 3% economic growth target, infrastructure development, export-led growth with innovative (greener steel) opportunities and significant contribution to Government’s decarbonisation objectives.”

Strategy by the company

Amsa added that its next step is to focus on investing in innovation and growth. It will set its eyes on securing the core business and improving the quality of the earnings.

“This will allow the Company to reduce costs, increase volumes from select products and invest in capital projects that have the potential to transform the Company and ensure future stability and sustainability.”

Amsa’s strategy also includes a high-payback investment portfolio. This forms part of the greater sustainability and growth initiative and it has moved closer to bankability.

“Investment in these projects will achieve incremental earnings and cash flow benefits from sales volume growth, cost savings, net capital expenditure savings, and progression of the decarbonisation initiatives. Work on a funding solution for these investments, which would also address balance sheet resilience, was continuing.”

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Government support, action needed

Amsa acknowledges the support given to the industry by the government and stakeholders.

“The process to implement trade measures is progressing, although slower than anticipated. There has also been extensive engagement with Transnet in this regard.”

The steel company said there is no lack of commitment, but there is not sufficient urgent action. They request that the government intervenes with urgency on the following issues to ensure a level playing field and allow for the Longs Business to continue operating:

• Reduction of the export tax on scrap to zero.
• Implementing trade measures.
• Addressing circumvention.
• Reduction in electricity prices to address the current over-charge relative to global competitors.
• Reduction in rail and port prices on the same motivation as detailed for electricity.

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