There is not much love for ArcelorMittal South Africa (AMSA). The near-monopoly business is seen as overprotected and underresponsive by many of its customers. Many questions have been raised about the former parastatal over the decades, ranging from its controversial import parity pricing policy and whether it is charging excessive prices to its environmental and social impacts.
Nevertheless, even its most ardent critics will sympathise with some of the reasons it has provided for its decision to begin winding down its long-products business, which has only made a profit twice in the last seven years.
All South African businesses and residents know the pain of rising electricity prices and unreliable supply. For AMSA, this does not arise in the form of loadshedding, but rather load curtailment, whereby, at certain levels of power constraint, it and other energy- intensive operations are instructed to reduce consumption by a certain percentage for a specified time. In the first half of the year, AMSA reported 41 such instances and, given the intensity of loadshedding this year, it is likely that this output-limiting pattern has continued beyond June. At the very time of the longs wind-down announcement, AMSA confirmed that it was implementing load curtailment.
The collapse of the rail service, meanwhile, is less visible to many of us, with the discomfort felt mainly in our pockets. For companies such as AMSA, however, it has been devastating. Its mills are not situated alongside iron-ore mines and have, thus, been built with a fully integrated dependence on what was assumed would be a reliable rail service. Currently, only 65% of the group’s raw materials are being received by rail and the geographically isolated Newcastle long-products plant in KwaZulu-Natal has become a real victim of Transnet Freight Rail’s failures. At times, its furnaces have had to be stopped simply because iron-ore was unavailable.
South Africans can also sympathise with the pain associated with what has now been an extremely protracted period of sub-par economic growth, accentuated by extreme State capture and Covid. For the longs business, which AMSA has thought about closing twice since 2019, much store was place on the promise of revived infrastructure spending, as outlined in various official documents and recovery plans. A simple assessment of the state of the roads, streetlights, and the water systems, let alone the ongoing loadshedding, is confirmation enough that this did not materialise.
Given the support that AMSA has extracted from government over the years, there will probably be less sympathy for the fact that the final straw that broke the longs back was the result of adverse policy. Nevertheless, there is little question that government’s scrap export ban and the preferential pricing policy have seriously undermined the competitiveness of an integrated operation such as Newcastle relative to its electric-arc-furnace competitors.
The associated supply/demand imbalance that has arisen has made the longs business structurally uncompetitive and, this time, AMSA has decided that no government intervention will be sufficient to overcome this stark reality.