Steel producer ArcelorMittal South Africa (AMSA) has decided to undertake an orderly and commercial wind-down of steel operations at its Saldanha Works, with the intent to place the operation on care and maintenance.

This follows the completion of the first phase of a review of the operational and financial sustainability of certain of AMSA’s major operating sites, individual plants and production areas.

Saldanha had lost its structural competitive cost advantage to effectively compete in the export market, mainly owing to raw material and regulated prices. It was suffering severe financial losses that were expected to continue for the foreseeable future, AMSA said in a statement on Monday.

The process of winding down Saldanha’s steel operations will begin immediately and will likely be completed during the first quarter of 2020. About 900 people stand to lose their jobs as a result.

This decision was taken in the context of constructive ongoing engagements with key stakeholders, including government and organised labour, to find alternative solutions to the difficult situation in the South African steel industry.

Realising the importance of Saldanha to the region, and as far as reasonably possible, the company indicated that it would make every effort to minimise the impact of the plant’s closure.

Contractual domestic sales orders from Saldanha will now be fulfilled from the Vanderbijlpark Works.

Meanwhile, AMSA also pointed out that progress was being made with the next phase of the strategic asset footprint review, focusing on the Newcastle operations and certain of the long steel products rolling facilities, with the objective of sustainably improving their structural cost position and service offering.

“Exploration of the benefits of a concentrated operating footprint will be of foundational importance during this phase of the review,” AMSA stated.

Further, in July, the company indicated that it was consulting with its employees through a process provided for in Section 189(3) of the Labour Relations Act in relation to the anticipated large-scale restructuring needed to strengthen the long-term sustainability of the company.

It has now concluded the Commission for Conciliation, Mediation and Arbitration-facilitated consultation process.

The required steps will now be taken to implement the outcomes of the Section 189 process and ensure the company strengthens the sustainability of the business in the longer term.

The Western Cape government noted in a statement that it was "devastated" by the news of Saldanha Works being put under care and maintenance.

It said it had been in regular contact with Trade and Industry Minister Ebrahim Patel, AMSA COO Jake Olivier and Saldanha Works GM Juan Pedro Jimenez Navarro to try and prevent the closure of the steel works.

"We have urged national government to assist the company by reducing electricity and freight costs, by exploring alternative energy sources and by including the company in the Saldanha Bay Industrial Development Zone. We have also provided water tariff relief via the Saldanha Bay Municipality to assist the company to reduce costs at the steel works plant in Saldanha.

"However, in the end, this does not appear to have been enough to save the [plant], which will now be wound down and put into a state of care and maintenance, and which will be a blow to the regional economy in Saldanha."

It also indicated that it would work with the municipality and business stakeholders to continue to grow other sectors in the regional economy.

It said it would also be in contact with AMSA to discuss the assistance it could offer, especially to the employees who are likely to be affected by the plant's closure.

Trade union Solidarity, meanwhile, expressed its dissatisfaction at AMSA's decision to place the plant on care and maintenance.

"Solidarity is shocked by the announcement. We are aware of the fact that AMSA is facing major challenges in Saldanha with high input costs, a declining export market and government's economic policies, but such a drastic step gives rise to major concerns,” commented Solidarity deputy general secretary for the metal and engineering industry Willie Venter.

He added that the decision would have a significant impact on the Saldanha community and the Western Cape and expressed concern that AMSA may take further steps to mothball some of its other operations.

"There is also uncertainty about the future of the Newcastle plant," Venter pointed out.