Huge respite for Newcastle – ArcelorMittal reverses decision to close, cut 3 500 jobs
ArcelorMittal South Africa extends operations of its Longs Business beyond the planned wind-down period to ensure sustainability. Despite challenging market conditions, manufacturing sector growth shows promise, supported by stable power supply. Short-term initiatives address operational efficiency and cost structures. CEO Kobus Verster reaffirms commitment to securing Longs Business sustainability amidst ongoing challenges.
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ArcelorMittal South Africa announces continued operation of Longs Business
Issued by ArcelorMittal South Africa Limited
Johannesburg, Tuesday 02 July 2024 – ArcelorMittal South Africa today announced that its Longs Business will continue to operate beyond the initially deferred wind-down period, as the company pursues a range of initiatives aimed at securing its long-term sustainability. This decision comes in the wake of the February 2024 announcement to defer the wind-down of the Longs Business for up to six months, allowing time to progress and conclude identified short-term interventions while developing additional medium- and longer-term sustainability measures.
Sustainability and growth in the manufacturing sector
Despite overall weak market conditions and difficult trading environments, the manufacturing sector has shown some encouraging signs of growth. Manufacturing production increased by 5.3% year-on-year and 5.2% month-on-month in April, marking the largest monthly increase since August 2021. The absence of load-shedding, if sustained, is expected to contribute further to this improvement. The latest manufacturing growth forecast for 2024 stands at 1.1% year-on-year.
Recent increases in power generation, coupled with renewable energy projects scheduled to come online over the next two years, suggest that the drag on economic growth caused by electricity shortages should gradually diminish, facilitating structurally higher production levels.
Commitment to the sustainability of the Longs Business
The Board and Management of ArcelorMittal South Africa remain acutely aware of the potential impact that closing the Longs Business would have on the beneficiation and manufacturing value chain, overall industrialization in the country, jobs, and the local economy, particularly in KwaZulu Natal. The immediate impact on the Unemployment Insurance Fund alone could run into billions of Rands.
Kobus Verster, Chief Executive Officer of ArcelorMittal South Africa, commented: "Despite progress being slower than anticipated and some disappointments along the way, we are committed to fully exploring all avenues to secure the sustainability of our Longs Business. We will continue to work closely with our customers, suppliers, and stakeholders to ensure the sustainability of long steel products supply in the Southern African region."
The Longs Business remains fully operational, with all facilities continuing to operate and effectively servicing its markets and customers. Progress on short-term initiatives includes:
• Scrap Advantage: The expiration of the steel scrap export ban in December 2023 has initiated a process to bring greater fairness and equity into the input cost structures between integrated and scrap-based primary steel producers.
• Port and Rail Efficiency: Transnet's performance for ArcelorMittal South Africa has improved. Negotiations to guarantee port and rail service efficiency are at an advanced stage, with only a few key matters yet to be resolved.
• Trade Normalisation: In response to global steel market oversupply, South Africa has shown renewed determination to ensure a level playing field for local manufacturers. A provisional safeguard duty of 9% is to be implemented on certain hot rolled steel products by the International Trade Administration Commission (ITAC).
• Working Capital: The company has successfully obtained an additional 12-month, secured working capital facility of R1 billion to support ongoing initiatives and continued operations.
• Labour Discussions: Disappointingly, discussions with organized labour to reduce the cost structure of the Longs Business were unsuccessful, as trade unions rejected efforts to find solutions that would have enhanced the company's competitiveness.
While these short-term initiatives only partially address the structural sustainability of the Longs Business, progress is being made on medium- and longer-term interventions. These include advancing local mineral beneficiation policies for iron ore to supply regional demand and promoting local supply for local demand in key economic sectors and State-owned Enterprises.
Operational update
The Longs Business has maintained operational stability throughout the first half of 2024, a testament to the dedication of operating teams despite uncertainties about the business's future.
The Flats Business in Vanderbijlpark, however, experienced notable instability at its blast furnaces in April and May 2024 due to chilled hearth conditions. Blast Furnace C returned to operation on 1 May after a three-week outage, while Blast Furnace D resumed on 29 May following a five-week outage. Increased steel inventory levels, initially prepared for a planned Q2 2024 repair, enabled continued supply to customers. Overall, approximately two weeks of sales volumes were lost, which may be recovered in the second half of 2024, market conditions permitting.
To manage the situation, procurement supply chains were sharply contracted, and short working hours were implemented at semi-idled plants to control fixed costs. Intensive cash management actions were bolstered to preserve liquidity. Recovery plans for H2 2024 include a rescheduling of the Blast Furnace C shotcrete and hearth repair to later in the year.
Financial outlook
With the Longs Business broadly performing within expectations, the financial results for the six months ended 30 June 2024 are expected to be negatively impacted by challenging domestic and regional trading conditions, as well as the operational interruptions at the Vanderbijlpark blast furnaces. However, due to intensive cash management actions, the net borrowings position is anticipated to remain within tolerable levels. The second half of 2024 is expected to more accurately reflect the underlying business performance.
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