Saving South Africa’s steel sector

The closure of ArcelorMittal South Africa’s Newcastle steel works will have a devastating impact. It’s now up to the state to act – fast.
5 mins read

South Africa’s entire engineering sector is staring down a “socioeconomic catastrophe” reckons the Steel and Engineering Industries Federation of Southern Africa (Seifsa), thanks to the decision by ArcelorMittal South Africa (AMSA) to shut its Newcastle and Vereeniging long steel plants.

AMSA first threatened to put the works on care and maintenance in November 2023; that decision prompted scrambling by the government to avert a closure, but a year has passed and talks with the state, through the department of trade, industry and competition, have – yet again – come to naught.

AMSA says falling steel prices, unaffordable energy and logistics costs, and surging low-cost imports, especially from China, mean it cannot continue producing steel from its Newcastle works without endangering the entire business. As it is, the decision – and associated retrenchment costs for 3,500 staff – will push AMSA to book a R2.7bn impairment. That’ll see losses of up to R4.41 a share for the year ended December.

Colin Wilson is the CEO of Euro Steel and a veteran of 35 years in the industry. He says while there are those who say AMSA should just be left to its fate, the domestic market as a whole will take a body blow from its demise.

“I’ve been watching heavy steel users in the industry being closed down for decades now and it’s been a slow, insidious process,” he says. “Unfortunately, when the capacity goes, the skills go, and then the ability to manufacture downstream steel products is gone. So I’m not of the opinion that shutting things down (in preference for cheap imports) is a good thing because once the institutional memory is lost, you become less able to manufacture, to innovate, to do anything, and then it’s a total import economy.” 

Wilson reckons the closure of AMSA’s longs business will undoubtedly see the entire steel sector continue to shrink, potentially by up to a fifth in the next decade; Rapport on Sunday put the wider number of jobs lost at more than 100,000, citing stats from the South African Iron and Steel Institute (SAISA), which takes into account the hit that other industries will suffer too, from miners to carmakers which rely on AMSA’s plants for particular products. 

“There’ll be some steel importers who will welcome the closure as there’s less local competition, and they in the short term will most definitely become busier, but overall there’ll be a net loss to business in South Africa,” warns Wilson. “To lose primary steel manufacturers and import even cheap steel from China creates a drag effect because of increased lead times, distance, ship and container shortages, bottlenecks at harbours, so you find that downstream end users will have decreased capacity to produce. Over time some will close their factories totally, or convert to importing the finished component.”

No wonder Seifsa president Elias Monage calls the closure of AMSA’s longs business “a profound policy failure”.

The “lofty goals” of the state’s steel master plan, he said in a statement last week, “have failed dismally”.

The master plan was meant to deliver a comprehensive industrial policy framework. Instead, says Monage, “what we are witnessing is the opposite, wherein policy is implemented in a fragmented manner, with a short-term view and with pockets of industry being pitted against one another”.

“The fact of the matter is that ArcelorMittal SA never had a prayer – we’ve seen this play out before with the closure and mothballing of Highveld Steel and Saldanha respectively, all at the feet of a dithering government too slow to react and offering too little too late.”

Currency approached the department of trade, industry and competition for comment, but deputy minister Andrew Whitfield has yet to respond.

‘The most beautiful word’

So how did it get to this?

For starters, South Africa’s barely-there economic growth since the 2010 World Cup is hugely to blame. Steel demand last year, for example, was just 4.1Mt; down a 10th on the year before, and less than half local steelmaking capacity of 8.8Mt. Worse, 1.3Mt were imported. 

As for steel production, South Africa had made about 4.4Mt by end-November according to SAISI stats. That’s a staggering 30% less than in 2018, placing South Africa behind Egypt and Algeria in Africa. Meanwhile, AMSA says imports into South Africa have grown by almost 50% since 2018, while exports are down by 40%. 

So what now?

Well, there’s “the most beautiful word in the dictionary,” according to Donald Trump: tariffs.

These have almost assuredly saved US steelmakers from the tidal wave of Chinese exports of the past decade.

As Wilson explains: “If you look at America, their domestic steel price is up to 25% higher than most countries in the world because they protect it closely, so their steel producers are all highly profitable. And because their market is deep and wide they can get away with it.”

Asked whether South Africa should impose tariffs, Wilson reckons a “qualified” yes, as he has watched the unintended consequences of steel company closures over two decades lead to the deindustrialisation and shrinking of the steel sector.

“People say that protection is wrong because it just raises the cost of primary steel, and fabricators and manufacturers won’t be able to compete downstream and to an extent that’s true, so you have to do it in a measured manner,” he says.

Tariffs “would give AMSA a stay of execution”, but then the company needs to take some harsh medicine of its own too, not to mention find the money to invest in its plants to make them globally competitive.

And then “the rest of the economy has to come to the party in terms of getting the structural bottlenecks like logistics [sorted] and power that’s at a reasonable price”, he says. “But how quickly, for example, is Transnet going to get its act together? Well, don’t hold your breath.”

Kaizer Nyatsumba, who served as the first black executive director of Seifsa and who is about to publish a book on the history of the federation, agrees that a short-term imposition of tariffs might help. But, he says: “Tariffs are not meant to be a permanent feature of the economy. You need to be improving your level of competitiveness. I don’t know what can be done now. Maybe it’s good that AMSA finds itself in this situation; there are many players in the sector – fabricators – who resent AMSA very strongly and who do not share any concerns about its possible demise.”

Protea Capital Management CEO Jean Pierre Verster, who scans world markets for investments, says the question for South Africa is whether steel manufacturing is a strategic industry. “If the answer is yes, then you should follow a strategy to make your local strategic steel mills sustainable.” But, he cautions, “these days there are few things that are really strategic. Down the line, nine times out of 10, one decides: we don’t really need to protect this, so it dies, and you just import alternatives and it’s fine.”

Monage says what’s now needed is urgent leadership, “a focused character and decisiveness that up until now has been missing and without which we will be doomed to the same results”.

Still, Seifsa CEO Lucio Trentini reckons that South Africa’s steel sector can survive. “I believe it can; the sector is bigger than just AMSA,” he says. “Losing AMSA’s longs business is a huge blow, but it’s not fatal. Steel remains the cornerstone of rebuilding our economy; the industry can be saved.” 

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Giulietta Talevi

A prominent voice in print and broadcast financial journalism with a sharp edge in market and company news. Former Financial Mail Money editor and BusinessDayTV anchor, Giulietta boasts an influential digital footprint that commands industry respect.

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