Government still talking to ArcelorMittal while Seifsa identifies challenges

Government is still talking to ArcelorMittal about the closure of its long steel business while research by the Steel and Engineering Industries Federation of Southern Africa (Seifsa) employer association found various challenges facing the metals and engineering sector this year.

The department of trade, industry and competition says in a statement that the South African government notes ArcelorMittal’s decision to wind down its long steel business in the country.

“Recognising the steel industry’s vital role in South Africa’s economic reconstruction and recovery, we would like to reassure all stakeholders that we are engaging ArcelorMittal on finding a solution to maintaining long steel capacity in South Africa.”

However, when asked for comment on the department’s statement, ArcelorMittal said it is not in a position to comment further.

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Seifsa identifies challenges for the metals and engineering sector

Meanwhile, research by Seifsa shows that the outlook for the South African metals and engineering sector in 2025 is far from rosy as it faces a variety of headwinds locally as well as globally.

The Seifsa State of the Metals and Engineering Sector Report 2025 examines the state of the metals and engineering sector amid heightened geopolitical tension, low economic growth, and pedestrian execution of the reforms needed to unlock economic growth.

According to the latest full-year estimates for 2024, the sector’s production declined by 1.4%, while it employed 362 210 people, an increase of only 0.5% from 2023. The numbers support the view of Seifsa’s chief operating officer, Tafadzwa Chibanguza, who says any improvement in the numbers was marginal to negligible.

Along with the fall in production, exports declined by 6.3% and imports by 6.9%, while the sector’s gross domestic product (GDP) expanded by just 1.1%. There was a marginal increase in capacity utilisation, although it remains below optimal capacity at 75.4%.

The sector’s trade balance is also still negative, although there was a slight improvement of about 8% in 2023. “Putting this statistic into context, this is because imports contracted more than exports,” Chibanguza says.

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Heightened geopolitical tension of particular concern for Seifsa

And if local challenges are not enough, the heightened geopolitical tension is of particular concern because the sector exports about 46% of its output, he says. “What goes on outside the country is extremely important, and the foreign policy decisions taken by the country also have implications for external trade.”

One of these markets, the US, accounts for 8.3%, or R33 billion, of the sector’s exports. South Africa imports 6.7% or R40.6 billion from the world’s largest economy. In 2024, the sector had a trade deficit of about R8 billion with the US.

“Trade with the US historically had a negative trade balance, a function of the fact that we export more primary products while we import mainly high-value products like machinery. Over the past two decades, trade volumes remained largely flat, while the value of trade was influenced by the movements of the rand/dollar exchange rate.”

Although the overall trade balance is in deficit, sub-sectors of non-ferrous metals and basic iron and steel individually have positive trade balances with the United States. Chibanguza says the concern is that these are sectors the US wants to levy export taxes on, which will unfortunately have adverse effects on one of the positive contributions of that trade.

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Seifsa identifies opportunities for Brics+ and Africa

He points out that the Brics+ countries are also worth some consideration and are important trading partners for South Africa. China is the dominant player of the bloc, representing 83% of the metals and engineering sectors’ trade. The balance of the eight countries, Brazil, India, Russia, Ethiopia, Iran, Egypt, Saudi Arabia, and the United Arab Emirates, collectively represents the balance of the trade.

Therefore, Chibanguza says, for the metals and engineering sector, Brics+ is largely a China play, although the country’s trade deficit was recorded at R188.4 billion in 2024.

Closer to home, he says Africa accounts for the lion’s share of the sector’s exports, with a total of 41% of exports. “Despite the challenges of intra-African trade, the continent still presents considerable opportunity for the sector.

“Private capital flows into the continent in the form of foreign direct investment are on the increase. Also, the continent’s age demographic, which is relatively young, augurs well for the long-term growth of the African economy.”

A recent International Monetary Fund (IMF) report highlighted additional aspects that will make Africa an important growth frontier. These include the fact that broadband capacity on the continent is expected to increase sixfold between 2022 and 2027, which will increase much-needed digital connectivity.

The International Monetary Fund (IMF) has forecast a growth rate of 4.1% to 4.2% for Africa, while other regions are estimated to either be growing at lower rates, plateauing or declining.

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Carbon border adjustments another challenge

Another concern for the sector is carbon border adjustments, Chibanguza says. “There is considerable concern about the growing global tendency to lean on those instruments. Countries responded to the EU’s early introduction of the instrument, the Carbon Border Adjustment Mechanism (CBAM), in three ways by opposing it, imposing their own CBAM mechanisms and those who are considering domestic emission trading systems (ETS) to capture carbon revenues locally.”

This is also considered as the first step toward developing their own CBAM mechanism, Chibanguza says. About 36% of the sector’s exports would be affected if all the countries that are currently imposing as well as those that are still considering ETS schemes all apply the CBAM mechanisms.

“There are also a number of domestic headwinds facing the sector, including persistently pedestrian economic growth, the fact that government’s well-intended reforms have not yet borne fruit and widespread company closures, such as ArcelorMittal’s long steel business and the many other companies across the sector that face weak order books and strong import competition.”

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Sustainable growth path

Chibanguza says the sector could only be set on a sustainable growth path by:

• The development of an all-encompassing metals and engineering policy that sets tangible and bold ambitions
• The creation of a demand-pooling structure that identifies and prepares projects through the feasibility process and
• Funding that ensures fast-tracking of the public-private partnership (PPP) framework being considered by National Treasury.