Government’s support for, and commitment to, addressing the removal of export tax on scrap metal, resetting the price preference system (PPS) mechanism at an appropriate level, implementing trade measures and reducing logistics and energy costs are insufficient and more urgent action is needed to save steel producer ArcelorMittal South Africa’s (AMSA’s) long steel business, the company said in a voluntary trading update on October 16.
After initially saying it would close its long steel business, AMSA announced in July that the longs business would continue to operate.
At the time, the company said that “. . . despite progress being slower than anticipated and with some instances of disappointment, the board and management have decided that the longs business will continue to operate to allow an opportunity for the short-, medium- and longer-term initiatives aimed at securing its sustainability, to be fully explored”.
In its latest update, AMSA acknowledges that there has been support by government and stakeholders to tackle the issues affecting the viability of the longs business, noting that the process to implement trade measures is progressing, although slower than anticipated.
The steelmaker acknowledges that there has also been extensive engagement with State-owned Transnet in this regard.
Also, government has engaged with industry associations, notably the Steel and Engineering Industries Federation of Southern Africa (Seifsa), regarding these issues, and the steps needed to revive the steel industry and the economy.
Trade, Industry and Competition Minister Parks Tau has also acknowledged the need for effective collaboration and urgent intervention to revive the economy and the steel industry as a strategic sector to enable the national priority of industrialisation.
However, AMSA is not satisfied that progress is being made fast enough.
“There is a need to act expeditiously and, as a result, the company has once again approached government and has requested urgent intervention on [several] issues to ensure a level playing field and allow for the longs business to continue operating,” AMSA said.
Among the issues referred to are a reduction of the export tax on scrap to zero, the resetting of the PPS mechanism; the implementation of trade measures; addressing circumvention; and a reduction in electricity, rail and port prices to address the current overcharge relative to global competitors.
“The company has taken steps to avoid the closure of the longs business thus far as it will have far-reaching effects, including a negative impact on the downstream, direct and indirect job losses, an increase in imports and a loss of critical local manufacturing and opportunities for localisation and beneficiation, [and] having a profound impact on the national and local economies within our footprint areas,” the company says.
AMSA warns, however, that if these issues are not addressed as a matter of urgency, it will only be a matter of time before the viability of the entire business will be at risk and that the company will need to take steps to ensure that this does not happen.
“A viable and sustainable primary steel industry has the potential to make a significant contribution to national priorities, including employment and the 3% economic growth target; infrastructure development; export-led growth with innovative, greener steel opportunities; and a significant contribution to government’s decarbonisation objectives,” the company says.
AMSA says its board and management will continue to assess the viability of the longs business and that, whatever decision may be reached, it will be unlikely to dramatically affect the company’s earnings trends for the remainder of the financial year.
The steelmaker’s share price on the JSE fell by more than 12% following the publication of its business update on October 16.
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