ArcelorMittal SA job cuts are a symptom of a global problem

The announcement from ArcelorMittal that it will be cutting 2,000 jobs comes at a bad time for SA. Compounding the pain of the job losses is ArcelorMittal’s statement that “Due to the difficult domestic economic environment, the South African steel industry continues to face significant challenges.” ArcelorMittal seems to be blaming the cuts firmly on domestic problems in SA.

But this isn’t entirely fair. No one is claiming SA doesn’t have its share of problems. But steelmakers in China, the US, and Europe have been cutting production because of soaring iron prices. Iron ore prices have risen nearly 70% this year. The pressure on steel companies has been so great that China’s biggest steel mills have formed a group to investigate suspected meddling in the market.

Eskom and problems with SA’s road and rail networks are obviously a major factor in ArcelorMittal’s struggles. But SA has little control over the sky-high prices of iron ore that are hurting steelmakers everywhere. With business and consumer sentiment down in the dumps, it’s important to be clear about what SA is doing wrong, and where it is a victim of circumstances beyond its control.

Comment from Biznews community member Keith Saffy:

Your comment about Arcelor Mittal’s problems being related to high iron ore prices is twaddle.

Iron ore prices are fairly global in nature. All steel mills around the world face the same iron prices and therefore need to compete on their conversion margin. The conversion margin is their cost of converting iron ore to the final steel product.

If the price of iron ore trebled they would still be in the same competitive position.

The only time very high raw material costs becomes a problem is where there is substitution threat (say into Aluminium). But that does not seem to be an issue presently.