Government must help rescue steel
Arcelormittal SA expects to make a final decision by August on the closure of its long steel operation, which puts 3 500 jobs at risk
The South African steel industry — which has seen muted growth over the last decade — needs the government to help it save jobs, stakeholders say. Steel producer Arcelormittal South Africa recently said it would continue to mothball its long steel business at its Newcastle and Vereeniging plants, shedding 3500 jobs, if government-led interventions to resuscitate the industry did not go as planned.
In February, the steel giant said it would defer the closures, originally announced in November, to August this year, as it pursues various initiatives with the government, Transnet and workers.
The long steel business — which produces fencing materials, rails, rods and bars used in the construction, mining and manufacturing sectors — has been hamstrung by low demand and infrastructure challenges, which have driven costs higher.
Speaking at a media roundtable hosted at Arcelormittal’s Vanderbijlpark plant last week, the company’s chief executive Kobus Verster said that the decision to close the long steel business depended on the government’s next moves.
“We are still progressing with the short-term initiatives but all of them are complicated and not easy to solve,” Verster said.
“To get an agreement with Transnet on a system for improved efficiencies is complicated but we are moving forward on that.”
He continued: “We will not continue the Newcastle and Vereeniging plants based on promises. We need definitive agreements on the issues that were raised.”
Measures to support the industry include a proposal to lift a scrap-metal export ban, which Arcelormittal argues gives a cost advantage to lower-quality, scrapbased steelmakers.
Another issue under discussion is the enforcement of the carbon tax. South Africa was the first African country to adopt a carbon tax policy, which was first implemented in June 2019 as part of the country’s climate mitigation strategy.
In a separate interview with the Mail & Guardian, Vester said the current carbon tax regime was unsustainable for steel producers, the cement industry and Sasol.
The final issue under discussion is Transnet’s performance.
On this matter, Verster said Transnet’s inadequate rail capacity meant that companies were forced to rely on expensive road transport.
“Transnet’s penalty must cover alternative transport,” he added.
“The financial impact of Transnet on a standalone basis is quite huge and it is a critical thing that needs to be resolved. And if we can’t agree on that, we have to stop the furnace.”
Ayabonga Cawe, chief commissioner at the International Trade Administration Commission (Itac), said low domestic steel demand is the result of inadequate infrastructure investment by the government.
According to Statistics South Africa, public-sector capital expenditure — money spent on construction, machinery, equipment, land, buildings and other fixed assets — decreased by R6.1 billion between 2020 and 2021, from R204.3 billion to R198.2 billion.
This number increased in 2022 after five consecutive years of decline to R209.1 billion in 2022.
However, a major reason for the overall increase was the resumption of construction projects after the Covid-induced pause.
Demand constraints mean that Arcelormittal is producing well below its installed capacity.
Last year, Arcelormittal made 2.8 million tonnes of steel, an improvement on the 2.4 million tonnes it produced the year prior. But it has the capacity to produce almost double that.
According to the World Steel Association data published earlier this year, the global industry produced 18.88 billion tonnes last year. Of this, South Africa only produced 4.8 million tonnes while China — the world’s largest steel-maker — produced more than a billion tonnes.
“And then, on the other hand, you’ve got voluminous imports coming into the country that are displacing some of the steel products,” Cawe said.
The South African Iron and Steel Institute’s Charles Dednam noted the country is importing a substantial amount of steel — roughly 30%.
Last year, Itac found evidence of steel dumping by Chinese exporters. The agency recommended that Trade and Industry Minister Ebrahim Patel impose definitive anti-dumping duties on Chinese imports.
“These Chinese imports affect everyone throughout the value chain. If the Chinese products land at a price that is below the input cost, it makes it difficult for us to contest due to unfair trading practices,” the institute’s Lufuno Munzhelele said.
Munzhelele continued: “The government is required to intervene decisively through imposing trade remedies that would safeguard the whole value chain.”
Meanwhile, steel industry jobs are in jeopardy.
According to Verster, Arcelormittal
‘The government is required to intervene ... through imposing trade remedies that would safeguard the whole value chain’
cannot absorb the jobs lost through the closure of its long-steel business because the rest of its operations are already over capacity. The company currently employs 10000 people.
Despite the pending job losses Verster told the M&G that there is still hope for the steel industry.
“We are experimenting with green steel … It’s a process that will renew the whole industry. Steel is here to stay. We cannot develop without steel. We know how to decarbonise, that is the sunrise part,” he said.
According to Cawe, the largest employer in manufacturing is the agro-processing industry which relies heavily on aluminium and steel production for its packaging.
The second-largest manufacturing employer is the automotive sector, which also relies on domestically produced steel.
“Jobs in the steel industry cannot be looked at in isolation. We have to look at the linkages in that particular sub-sector of manufacturing. That is how we will ensure that we retain and expand those capabilities.
“We have to make sure we do everything we can to defend the existence of the jobs in the industry. As long as we are still going to continue building, we are going to need steel and jobs,” Cawe said.