Steel producer ArcelorMittal South Africa (AMSA), which recently completed the R2-billion reline of the blast furnace at the Newcastle mill, has decided not to immediately ramp up the plant to its expanded 1.9-million-tonne-a-year nameplate capacity, owing to weak domestic market conditions.

Speaking during a tour of the upgraded KwaZulu-Natal facility CEO Paul O'Flaherty said that, while the JSE-listed group’s ‘fill the mills’ strategy remained largely intact and was helping to lower costs, particularly at its Vanderbijlpark operation, it would be “financial suicide” for Newcastle to pursue the strategy in the current environment.

He described the South African steel market as being under “severe pressure”, noting that, in the absence of import protection, the domestic market was currently heavily exposed to cheap imports, especially from China. AMSA estimated that imports comprised 40% of all steel consumed in South Africa during February.

As a result the group had decided to hold Newcastle’s daily output at 4 300 t instead of operating it at its 5 200 t daily potential. But Newcastle GM Gerald Gadd stressed that the mill would require only between four and six weeks to move to full capacity should market conditions improve.

Gadd also stressed the long-term nature of the investment into the mill, which he described as a major vote of confidence in both the operation and the Newcastle area, where the plant was a major economic and employment driver – the mill employs nearly 3 000 people directly and is a source of revenue for around 620 local companies.

Echoing this view, O’Flaherty said that the investment was “an investment in the future” and had been pursued despite the difficult economic circumstances in which the country found itself.

But in the absence of private infrastructure investment and the weak mining and manufacturing climate he argued that government needed to do more to raise infrastructure spending as outlined in the National Development Plan.

AMSA had produced at a capacity utilisation in its guidance range of between 85% and 87% in the first quarter of 2015, but production levels were likely to taper during the second quarter to align output with the weak market and high stock levels.

NO HIGHVELD BID

He also said that AMSA had no intention of making a bid for Highveld Steel & Vanadium, which recently entered business rescue. But he described the predicament of South Africa’s second largest steel producer as bad news for South Africa, for Highveld’s 3 000 workers and for the “depressed” Emalahleni area.

Should the plant be forced to close or curtail production, AMSA would only be in a position to mop up some market share in overlapping product segments, while the balance of Highveld’s production would be lost to imports. The Mpumalanga-based mill had the potential to produce around 800 000 t/y of long and flat products, but had recently been producing at far lower levels.

“[But] we are not intending to take over or make an offer for Highveld.”