Newcastle to lose 37% of its jobs: Devastating consequences of ArcelorMittal closing

A report shows exactly how devastating the closing down of the long steel business of ArcelorMittal will be for the communities of Vanderbijlpark and Newcastle. ArcelorMittal decided to close down its factories after government failed to change policies that would help it remain open.

Independent economic consultancy Econometrix released a report into the impact of tax policies on South Africa’s steel sector and economy on Thursday, with the title “Economic impact of tax policies on South Africa’s steel sector and economy”.

According to the report, the impact on Newcastle will mean R859 million in lost wages, which is 35% of Newcastle’s manufacturing wage bill, R3.6 billion in lost procurement that will cripple SMMEs and vendors and R17.4 million in lost corporate social responsibility for education, infrastructure and development.

A total of 3 400 direct jobs at the Newcastle plant are now lost, which is expected to lead to 60 000 to 80 000 upstream and downstream job losses. Newcastle’s unemployment crisis is expected to worsen, with 37% of the town’s formal jobs gone.

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ArcelorMittal closure in Newcastle will affect regional economic stability

The closure will also affect regional economic stability, have a negative effect on South Africa’s manufacturing base, disrupt supply chains and inter-industry linkages, cause the loss of unique steel production and industrial competitiveness, weaken South Africa’s industrial base and increase the burden on municipal and national government.

The report also points out that besides the catastrophic social and economic impact the closure will have on the town of Newcastle and its citizens, there will be significant effects on the fiscus, with increased costs to the state, such as social grants, unemployment insurance fund (UIF) payouts and medical and health expenses.

“In general, the municipality and its citizens will face increased poverty and diminished services,” Dr Azar Jammine, director and economist at Econometrix, says.

President Cyril Ramaphosa said earlier that the steel sector is at the heart of South Africa’s economy, as it has a significant multiplier effect and is one of largest job creators in the manufacturing sector.

“Our infrastructure drive should be the catalyst that propels its recovery and growth. We are determined to build a local steel sector that is strong, competitive and well-positioned for the future.”

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ArcelorMittal closure result of steep decline in steel sector

However, the report illustrates a local primary steel sector in steep decline that reflects broader patterns of deindustrialisation and stagnation in the manufacturing sector that had profound implications for economic growth, employment and regional trade.

The report identifies structural challenges underpinning this decline, including increasing production costs, inefficiencies at state-owned enterprises, weak domestic demand and heightened competition from low-cost imports.

It also points out weaknesses in the policy environment, particularly the impact of measures such as the Price Preference System (PPS) and the export tax on scrap metal as challenges in the steel manufacturing sector.

While these interventions were designed to support local steel production, they instead introduced market distortions that disproportionately benefit mini mills while further disadvantaging traditional primary producers beneficiating South African iron ore.

The report points out that South Africa’s crude steel production almost halved from 9.7 million tonnes in 2006 to 4.7 million tonnes in 2024. While South Africa’s steel production dropped to just 0.3% of the global market share, steel imports surged by 50% since 2018.

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Declining steel production

Jammine says the multiple impacts of declining steel production are significant. “This includes a decline in contribution to gross domestic product (GDP), some 25 000 job losses since 2009, lower export revenue, the undermining of local infrastructure development and lost regional and continental trade opportunities.”

He points out that government policy contributed to the decline in primary steel production. The report notes that the Price Preference System, introduced in 2013, mandates that scrap metal exporters sell material to local producers at discounted rates, benefitting smaller, scrap-based mini-mills at the expense of primary steel producers.

The export tax, introduced in 2021, aimed to replace the Price Preference System and limit scrap metal exports but failed to address the broader structural issues, such as increasing costs and competition from cheaper imports, especially from China, Jammine says.

“The unintended consequences of government policy resulted in declining employment, reduced exports and earnings, lost economic potential, decreased turnover, lost opportunity costs from scrap export reductions and a negative impact on informal waste pickers.

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Mini mills stealing ArcelorMittal’s lunch?

“In contrast, the mini-mill sector benefitted significantly from the Price Preference System, which has functioned as a subsidy, maintaining profitability despite otherwise uncompetitive operating conditions. This suggests that the subsidy plays a crucial role in maintaining the profitability and viability of the mini mills.”

He explains that mini mills that primarily use scrap as input benefit unfairly from lower input costs due to the Price Preference System and export tax incentives compared to primary steel producers that rely on unsubsidised iron ore for high-quality steel production.

Jammine says these factors contributed to the closure of the long steel production plant at Newcastle in KwaZulu-Natal.

“Against this backdrop, the report highlights the urgent need for a recalibrated policy approach that levels the playing field for all industry players. Such an approach must consider the trade-offs involved, including the potential closure of inefficient mini-mills, job losses in recycling and the risk of reduced production capacity at primary steelmakers.”

At the same time, he says, it must prioritise measures to stimulate demand, improve operational efficiency and enhance South Africa’s position in regional and global steel markets.