The focus of steel producer ArcelorMittal South Africa’s (AMSA’s) strategic asset footprint review has shifted to its Newcastle mill, in KwaZulu-Natal, following the completion of the first phase of the review, which resulted in a decision to close the Saldanha Steel operation in the Western Cape.

CEO Kobus Verster tells Engineering News Online that various restructuring options are being considered, but cautions that Newcastle’s position is precarious, owing to the erosion of the mill’s structural competitiveness in recent years.

As with Saldahna Steel, rising transport, electricity and raw-material costs are major concerns, along with the weak outlook for domestic steel consumption and the persistent import threat.

Verster says the Newcastle review will be finalised in either January or February and confirms that, besides the 900 jobs affected at Saldanha Steel, further jobs could be lost at both Newcastle and across the broader group.

AMSA announced in July that it had initiated group-wide discussions with labour that could affect 2 000 fulltime-equivalent employees, including its own employees and contractors. The Commission for Conciliation, Mediation and Arbitration-facilitated process is well advanced and should be completed within weeks.

“Obviously the impact is larger than only Saldanha and potentially Newcastle, as you have to resize the whole organisation to fit a smaller footprint and a lower liquid-steel production,” Verster says, revealing that as many as 3 000 jobs across the company could be affected.

AMSA currently has about 13 000 fulltime-equivalent employees, 9 500 of whom are employed directly by the company.

Also under review is AMSA’s product range, which is likely to be rationalised as a result of the restructuring.

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

He confirms, for instance, that AMSA has failed to secure a negotiated pricing agreement with Eskom to reduce its electricity costs. In addition, the distance of Newcastle from its sources of raw materials has made the operation extremely sensitive to logistics costs, which have continued to rise in recent years.

The mill’s problems have been further exacerbated by weak domestic demand for the long-steel products produced at Newcastle. These products are highly leveraged to the country’s infrastructure spend, which has declined amid persistently weak economic growth in South Africa, fiscal constraints and the dire position of several infrastructure-focused State-owned companies.

AMSA reports that domestic steel consumption has slumped to a ten-year low, but that the market for long steel is especially weak. In addition, while the group faces no domestic competition in the flat-steel market, there are various scrap-based competitors in long-steel segments.

“So the over-supply in the Newcastle product range is substantial.”

The net effect is that Newcastle is unable to operate at nameplate capacity, which further reduces the efficiency of the mill and its ability to compete. The facility is currently operating at a utilisation rate of about 70%.

VANDERBIJL TO BE LIQUID-STEEL HUB

Although the review has not been completed, Verster tells Engineering News Online that the most likely scenario is for all upstream liquid-steel production to be consolidated at Vanderbijlpark, 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.

Under such a configuration Vanderbijlpark, which is AMSA’s largest operation, would be ramped up to full capacity. Nevertheless, overall yearly liquid-steel capacity would drop from about six-million tons to about 3.5-million tons. In 2018, the group produced about five-million tons of liquid steel.

It could, however, result in an increase in the company’s production of market coke, as Newcastle’s consumption of metallurgical coke is halted. “We will ramp up the production of market coke to supply the ferroalloy industry in South Africa. We already do supply the industry, but South Africa is short market coke and imports from China.”

Market coke production, which is currently located primarily in Pretoria, is likely to increase by as much as 400 000 t/y. In 2018, the group produced 184 000 t of the material.

Verster dismisses arguments that Vanderbijlpark is too old to be competitive, noting the blast furnaces are rebuilt every 15 years. “So the plant can be 70 years old, but the blast furnaces are, on average, eight years old and in very good shape and are operating at levels that are comparable with the rest of the world.”

He stresses that the restructuring under way at AMSA is geared towards improving the sustainability of a business that has made a profit only once, that being in 2018, in the past ten years.

“We are taking costs out of the business and substantial benefits have already come through to the income statement, but we have to do a lot of work still to get the fixed costs in line. Then, we will have a profitable company, most probably smaller, but focused on the domestic market and with a footprint and an overhead cost structure that fits the size of the organisation.”