The downstream steel industry cannot be the “saving grace” of struggling steel producer ArcelorMittal South Africa (AMSA), National Employer Association of South Africa (Neasa) CE Gerhard Papenfus has said.

Engineering News reported this month that AMSA would undertake an orderly and commercial wind-down of steel operations at its Saldanha Works operation, with the intent to place the operation on care and maintenance.

While Papenfus lamented the situation, he noted that, in respect of protectionist duties on steel imports, government would have to choose between protecting an unprofitable AMSA employing 9 000 employees, or breaking the “stranglehold” that these duties had on the downstream steel industry, which operated across many sectors and employed more than 500 000 people.

Papenfus emphasised that the protection of AMSA by means of import duties, which was impacting on downstream manufacturing, had to come to an end.

“It cannot be expected of downstream manufacturing to be the casualty of AMSA’s salvation,” he said.

Speaking to Engineering News, Papenfus explained that the situation at AMSA was the result of its basket price for iron-ore, coking coal and scrap metal being 18% cheaper than the world average, while its selling prices were 18% to 27% higher.

“Small business has no choice but to pay this price. Larger entities, however, can still import, even with the duties in place. “To avoid this, AMSA has no choice but to do special deals with these larger buyers, but the duties are just not enough to close the huge gap created by AMSA’s inefficiency,” he said.

Papenfus said that South Africa needed to start preparing for the post-AMSA dispensation.

In such a situation, he argued, the steel industry would have the privilege of accessing high-quality, cost-effective raw materials that would enhance competitiveness, resulting in South African manufacturers gaining market share, especially in the export market.

He indicated that the notion that the country’s ports and infrastructure would not be able to handle the additional imports was untrue, citing previous failures by AMSA during which infrastructure coped well.

“A few years back, during a drought, the surge in imports of maize was more than double what the surge in imports would be if AMSA closed down,” he posited.

“Moreover, he noted that the material imported from modern technology mills was “far superior” to that produced by AMSA’s outdated Saldanha mill.

While he emphasised that the demise of a business with thousands of employees was not ideal, priority should be given to the downstream industry, which had already lost tens of thousands of jobs.

Trade union Solidarity, meanwhile, said in a statement earlier this month that it would address a letter to government and to AMSA after having instructed its research institute to conduct a comprehensive study on the impact of the closure of the Saldanha Works operation.

The union indicated that, as a result of more expensive raw materials, price regulation such as power tariffs and a decrease in demand, AMSA’s Saldanha plant could no longer sustainably participate in export markets.

It further emphasised that the real impact on the Saldanha community and the Western Cape would be huge – thousands of people would be negatively affected by the mill’s closure.

Moreover, it noted its concern that the closure of AMSA’s Saldanha plant was only the first step in the steel producer’s footprint review, and that there was also uncertainty about the future of the Newcastle plant.

In this regard, Engineering News reported this month that AMSA’s strategic asset footprint review had now shifted to its Newcastle mill, in KwaZulu-Natal.

CEO Kobus Verster told the publication that various restructuring options were being considered, but he cautioned that Newcastle’s position was precarious, owing to the erosion of the mill’s structural competitiveness in recent years.

Verster indicated that the Newcastle review would be finalised in either January or February and confirmed that, in addition to the 900 jobs affected at Saldanha, further jobs could be lost at both Newcastle and across the broader group.

Verster said AMSA was willing to work with government and other stakeholders to find alternative solutions, but noted that it had no intention of reversing the decision to wind down the Saldanha mill and was also not optimistic that alternatives could be found in the near term to the structural issues undermining Newcastle’s competitiveness.

Although the review had not been completed, Verster told Engineering News that the most likely scenario was for all upstream liquid-steel production to be consolidated at its Vanderbijlpark operations, in Gauteng.

Downstream rolling and processing activities, meanwhile, will continue at Vanderbijlpark, which will supply material to other value-adding plants, including Newcastle, Duferco and Highveld Steel.

An initial study is also under way to assess the feasibility of relocating some of Saldanha’s downstream facilities to Vanderbijlpark.