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Thousands of employees will lose their jobs after ArcelorMittal South Africa announced that it is putting its major Newcastle and Vereeniging long steel operations in care and maintenance due to a lack of demand.
Its share price crashed almost 30% to 100c earlier on Tuesday, but recovered some of its losses by lunchtime. It was down 7% to 127c in early afternoon trading. The shares have lost more than 70% of their value over the past year.
Long steel products include wire, rods, railway rails and bars.
The steelmaker cited high logistical and transportation costs, energy prices and load shedding as reasons for giving up the operations. This comes after years of aggressive cost cuts to save the business, which ultimately proved fruitless as SA's steel consumption has declined 20% over the past seven years.
More than 3 500 employees will be affected by the decision.
ArcelorMittal said it tried to save the operations by aggressive cost-cutting, increased raw material cost savings and productivity initiatives over recent years.
"Despite these best efforts, the initiatives were unable to counteract the cumulative effect of a slowing economy and a difficult trading environment," said chief executive officer Kobus Verster in a statement. SA now consumes only 4 million tonnes of steel as infrastructure expenditure dwindled.
High transport and logistics costs, as well as escalating energy prices and load shedding have added further pressure.
In addition, a new preferential pricing system for scrap, a 20% export duty, and a ban on scrap exports have given steel production via electric arc furnaces an "artificial" competitive advantage over steel manufacturers, beneficiating iron-ore to produce steel. This means scrap metal traders who recycle steel are gaining an advantage over the company's more intense operations that consume heavy raw materials such as iron ore.
"These structural market issues are beyond ArcelorMittal South Africa's control and do not appear capable of being resolved in the foreseeable future," said the company.
The group's coke batteries at Newcastle, which produces metallurgical coke for use at the Vereeniging Works, will remain operative.
"The ArcelorMittal South Africa board and management have reached this point after having exhausted all possible options. As difficult as these circumstances are, we have a duty to ensure that the business remains sustainable in the long term, in the interests of the company and its stakeholders. The remaining business, after the wind down, will be substantially more profitable and able to invest the appropriate capital in product development and available growth prospects," Verster said.
The article has been updated with the latest share price movement.
