Posted on 07 Jan 2025
ArcelorMittal South Africa (AMSA) has decided to wind down the operations of its Longs division, despite efforts to keep the business afloat. The decision was originally announced for late 2023, but after extensive consultations with government and stakeholders to find a viable solution to keep the Longs business afloat, progress was insufficient to avert the wind down, Kallanish notes.
Recently, the Longs business has faced ongoing challenges, including weak economic growth, high logistics and energy costs, and an influx of low-cost steel imports, particularly from China. The persistent high costs of logistics and energy, along with inadequate policy interventions—especially past decisions such as the Price Preference System (PPS) and the Export Scrap tax. The Newcastle Works, which is the core of the Longs business, relies on South African-sourced raw materials, says AMSA in an official statement.
The South African steel industry is currently facing its most significant challenge since the financial crisis of 2008/2009. Crude steel production in South Africa for 2024 is expected to be 2.3% lower than 2023. Additionally, imports have increased by nearly 50% since 2018, while exports have decreased by 40%. The weak domestic market for long steel products, combined with both local and international overcapacity in steel production, has rendered the business unsustainable despite ongoing efforts to improve the situation, AMSA underlines.
Commenting on the decision, AMSA chief executive Kobus Verster said: "It is with deep regret that we must take this difficult decision. Over the past year, our employees and dedicated management team have shown remarkable commitment and resilience in the face of serious uncertainty. Unfortunately, despite everyone's best efforts, including significant engagement with stakeholders, the structural challenges in the Longs Business were not resolved. While this outcome is deeply disappointing, especially given the economic challenges facing South Africa, we remain focused on securing a sustainable future for the remaining operations."
The decision to wind down operations will directly impact the Longs business, especially 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 due to reduced demand. This will also affect certain roles in the Flats business and corporate support services, with approximately 3,500 direct and indirect jobs anticipated to be impacted. The broader economic effect on induced jobs is expected to be significantly higher, particularly in the Newcastle region, it adds.
The company's 2024 earnings are expected to decline by more than 5% compared to 2023, driven by weaker net realised prices, lower asset utilisation and challenges in the Longs business. Its earnings per share is expected to decrease to a loss within a range of ZAR 5.48 ($0.29) to ZAR 6.21 ($0.33) per share, compared to the previous year's loss of ZAR 3.52 per share. Headline earnings per share are projected to decline to a loss between ZAR 4.06 and 4.41 per share, from the previous year's loss of ZAR 1.70 per share.
Source:Kallanish
