ArcelorMittal South Africa Announces Major Changes to Navigate Steel Sector Challenges
In a major update issued by ArcelorMittal South Africa Limited, the company has outlined its decision to wind down the Longs Business, a move that reflects the severe pressures currently facing the South African steel industry. The decision comes after prolonged difficulties, including rising logistics and energy costs, insufficient policy interventions, and an influx of low-cost steel imports, particularly from China. Despite significant efforts and consultations with government and stakeholders, the business proved unsustainable.
Challenges Leading to the Wind-Down Decision
The South African steel industry, particularly ArcelorMittal South Africa’s Longs Business, has been grappling with several significant challenges. The global steel market, suffering from persistent overcapacity and unsustainably low international steel prices, has only exacerbated these difficulties. By late 2024, Chinese steel prices for Hot Rolled Coil and Rebar had fallen to below $500 per metric ton, which is far below what is considered sustainable for many steel producers, including those in South Africa.
Additionally, South Africa’s domestic market for long steel products remains weak. The country’s crude steel production for 2024 is forecasted to decline by 2.3%, while steel imports have increased by nearly 50% since 2018, leading to a reduction in exports by 40%. This combination of weak domestic demand and growing import volumes has created a challenging environment for local steel producers.
The decision to wind down the Longs Business will affect operations at the Newcastle and Vereeniging Works and AMRAS, the rail and structural subsidiary. While Newcastle’s coke-making operations will continue, they will be scaled back in line with reduced demand. The impact will be felt across approximately 3,500 direct and indirect jobs, with broader economic consequences, particularly in the Newcastle region. The company has committed to a responsible process to mitigate the effects on employees and suppliers, including initiating a Section 189(3) labour consultation process.
Financial Performance Amidst Market Challenges
The company’s financial performance for the year ending 31 December 2024 reflects the severe market conditions and the operational issues within the Longs Business. ArcelorMittal South Africa expects its earnings per share to significantly decrease, ranging from a loss of R5.48 to R6.21 per share, compared to the previous year’s loss of R3.52 per share. Headline earnings per share are also projected to show a decline, with losses expected between R4.06 and R4.41 per share, down from a loss of R1.70 per share in 2023.
Revenue for 2024 is anticipated to drop by more than 5% compared to 2023. This decline is attributed to weaker net realized prices, reduced asset utilization, and the operational challenges in the Longs Business. Additional costs related to the wind-down of the Longs Business, including asset impairments, severance charges, and other related expenses, have added financial pressure, totaling approximately R2.7 billion.
Despite these financial hurdles, the company has taken steps to manage its cash flow and net borrowings, including optimizing working capital, selling non-core properties, and managing the timing of receipts and payments to meet peak funding requirements.
Strategic Focus for the Future
In response to the challenging landscape, CEO Kobus Verster emphasized that ArcelorMittal South Africa is committed to long-term sustainability and innovation. The company is focusing on improving the Flats Business and positioning itself as a leader in steel-based industrialization for South Africa, Sub-Saharan Africa, and other strategic geographies.
The company aims to attract investments in high-payback sectors, such as automotive, renewable energy, mining, and infrastructure. By doing so, ArcelorMittal South Africa plans to improve its balance sheet and create new opportunities for growth in key downstream industries.
Prioritizing Innovation and Sustainability
ArcelorMittal South Africa is also determined to drive innovation and sustainability in its operations. This focus aligns with the company’s broader ambition to meet the evolving demands of a competitive global steel market. In particular, the company will focus on decarbonization efforts, ensuring that its operations remain aligned with the global shift towards more sustainable practices, while continuing to support South Africa's industrial development.
With its sights set on securing a sustainable future, ArcelorMittal South Africa’s leadership remains focused on enhancing the competitiveness of its remaining operations, ensuring that the company can weather the current crisis and emerge stronger in the years ahead. The company's commitment to driving growth and fostering innovation in steel production is expected to position it as a key player in the regional and global steel markets.
