ArcelorMittal South Africa (AMSA) has announced the wind-down of its Longs Business by early 2025, due to unsustainable operational challenges, weak market conditions, and rising costs. The closure, affecting around 3,500 jobs, underscores the severe impact of global overcapacity and low international steel prices. AMSA anticipates significant financial losses for 2024 but remains committed to its long-term strategy, focusing on the sustainability and growth of its Flats Business while supporting South Africa's industrial development..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here..By Kerry Lanaghan.ArcelorMittal South Africa Limited (AMSA) has announced several key decisions regarding the future of its operations, notably the wind-down of its Longs Business, a move prompted by a combination of challenging market conditions, high costs, and unsustainable operational practices. The company also provided an update on its financial performance for the year ending 31 December 2024, highlighting significant losses and the broader economic challenges facing the South African steel industry..Wind-down of the Longs Business.AMSA's decision to wind down the Longs Business comes after sustained challenges that have made this segment of the business unsustainable. These challenges include weak economic growth, high logistics and energy costs, and the influx of low-cost steel imports, especially from China. Overcapacity in both the global and local markets and persistently low international steel prices have further exacerbated the Longs Business's financial difficulties. AMSA specifically pointed to the structural challenges faced by the Newcastle Works, which processes South African-sourced raw materials. These issues were aggravated by policy decisions, such as the Price Preference System (PPS) and the Export Scrap Tax, which heavily subsidized scrap-based steelmaking, putting local operations at a disadvantage..Despite extensive discussions with the South African government and various stakeholders in an attempt to resolve these challenges, progress has been insufficient to prevent the closure. As a result, AMSA has made the difficult decision to transition the Longs Business into a care and maintenance phase, with steel production set to cease by late January 2025. The final wind-down process will be completed by the end of the first quarter of 2025..This move affects 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 to reflect reduced demand. The decision is expected to impact approximately 3,500 direct and indirect jobs, with a significant number of induced jobs also being affected, especially in the Newcastle region. To address the potential impact on employees, AMSA will initiate a formal Section 189(3) consultation process, ensuring that the wind-down is handled responsibly. .In July 2024, AMSA CEO, Kobus Verster, the importance of sustaining the Longs Business was discussed. Verster stated that AMSA was "committed to fully exploring all avenues to secure the sustainability of our Longs Business". This was stated with consideration of the impact that the wind-down of the Longs Business would have on unemployment in Kwazulu-Natal. Despite the positivity and commitment to the sustainability of the Longs Business, the decision to wind-down has been made. In a press conference held on 6 January 2025, Verster was asked what reaction the staff had about the news of the closure to which he responded "The staff is much more understanding" making it clear that AMSA did all it could to sustain the Longs Business. .Drivers behind the decision.The South African steel industry is currently facing one of its most difficult periods since the 2008/09 financial crisis. International steel prices are at unsustainably low levels, particularly due to record steel exports from China. In the fourth quarter of 2024, Chinese Hot Rolled Coil and Rebar prices fell below $500 per tonne, contributing to overcapacity in both global and local steel production. This situation has resulted in steel producers around the world announcing production stoppages, capacity cutbacks, and even plant closures, with a growing focus on fair trade practices and decarbonisation initiatives..Locally, South Africa's crude steel production is expected to decrease by 2.3% in 2024, with imports rising by nearly 50% since 2018, while exports have declined by 40%. AMSA's Longs Business has been particularly impacted by these market conditions, as the domestic market for long steel products remains weak and global overcapacity continues to push prices down..A sectoral engagement in November 2024, hosted by the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) and the Department of Trade, Industry, and Competition (DTIC), revealed a consensus among stakeholders that radical interventions are needed to address the industry's ongoing decline..At the press conference held on 6 January, Verster estimated that "About a million tonnes" of overall production will be removed as a result of the closure..Financial performance and forecast.AMSA anticipates a significant decline in earnings for 2024. The company expects to report a loss in earnings per share (EPS), with estimates ranging from R5.48 to R6.21 per share, compared to a loss of R3.52 per share in 2023. Similarly, headline earnings per share (HEPS) are projected to fall to a loss between R4.06 and R4.41 per share, a substantial decline from the previous year's loss of R1.70 per share. These losses reflect the continued struggles within the Longs Business, low international steel prices, high operating costs, and the impact of wind-down expenses, including an estimated R2.7 billion in asset impairments, severance charges, and other wind-down costs. AMSA has a history of unpredictability and making significant turnarounds. In February 2022, Kobus Verster told BizNews how AMSA managed to make remarkable shifts in the market. However, by November, AMSA's shares had significantly dropped..AMSA's revenue for 2024 is expected to decline by over 5% compared to 2023, driven by reduced asset utilization and weaker net realized prices. To address these financial challenges, AMSA has implemented measures to optimize its cash flow and manage its net borrowings. This includes actions like working capital optimization, sales of non-core properties, and better management of the timing of receipts and payments..Focus on the future and sustainability.Despite the setbacks caused by the closure of the Longs Business, AMSA's leadership is committed to ensuring the long-term sustainability of its operations. CEO Kobus Verster emphasized the company's ongoing focus on securing a future for its remaining operations, particularly its Flats Business, which will be the focal point for growth moving forward..AMSA plans to concentrate on innovation, sustainability, and competitiveness in the steel industry. This includes re-establishing itself as a key player in South Africa's industrialization, especially by supporting downstream industries such as automotive, renewable energy, mining, and infrastructure. To do this, the company will explore high-return investment opportunities, recapitalize its business, and improve its balance sheet to support these initiatives..In the coming years, AMSA is determined to solidify its position as a leader in the steel industry, focusing on sustainable operations and driving economic growth in South Africa and Sub-Saharan Africa. By addressing the pressing challenges of a competitive global market, AMSA aims to position itself as a key contributor to South Africa's industrial development while pursuing long-term growth and profitability..The decision to wind down the Longs Business marks a pivotal moment in the history of ArcelorMittal South Africa, driven by the confluence of global market pressures and local challenges. While the decision is expected to have significant social and economic repercussions, AMSA's leadership is committed to reshaping its operations for a more sustainable future. The company's focus will shift towards ensuring the growth and sustainability of its Flats Business, while also contributing to South Africa's broader industrial goals in the face of an evolving steel market..Read also:.🔒 Nir Kaissar: Stay invested – the market's froth isn't the endgameTesla's sales struggles reveal cracks in its AI-driven promisesSouth Africa's Rand breaks 8-Year streak to lead emerging markets
