Trade and Industry Minister Ebrahim Patel outlined, in a Parliamentary reply this week, the efforts taken by government to help make a positive case for why steel producer ArcelorMittal South Africa (AMSA) should not close down its Saldanha Steel Works operation.

Patel said four potential buyers were already considering making a bid for the operation, which government supported, so that jobs could be retained.

“We are encouraged by these early expressions of interest in Saldanha Steel. If AMSA is still intent on closing Saldanha Steel, a decision we do not agree with, then nonetheless we urge the company to engage actively and openly with potential buyers, and to offer them terms that would enable operations at the steel mill and employment opportunities to the local community,” the Minister stated.

AMSA on November 11 announced it would close the plant after the company launched an operational review of its asset footprint.

Government had embarked on a process to develop a master plan for the steel and metals value chain in South Africa, which would include both demand- and supply-side measures, while bringing greater competitiveness to the entire steel and metals industry.

Patel said a number of initiatives were progressing, to foster greater demand for steel by the public and private sectors, as well as to improve the cost base across the industry.

In light of this, the closure of the Saldanha steel mill could hamper efforts to rebuild the sector and would cause hardships in the local community.

The Minister had urged AMSA to reverse its decision and find solutions to keep the plant in operation.

The Department of Trade, Industry and Competition (DTIC), together with the Department of Public Enterprises, and State-owned entities Eskom and Transnet, engaged with AMSA’s management around support that could be provided to reduce energy and logistics costs for the company and at Saldanha, in particular. 

Government had facilitated engagements with iron-ore and coal producers, as well as organised labour, to find solutions to reduce costs in order to avert job losses. The combined support package offered by government ranged from concessions on iron-ore pricing, electricity, water and rail tariffs, providing considerable cost savings.

AMSA had, however, asked for support in excess of what was made available through the efforts of government, Patel confirmed.

Government further had, over the past few years, supported AMSA with tariff protection from imports including safeguard duties and the designation of steel for state infrastructure projects which directly benefitted the company. 

To support the entire steel and metals value chain, government had brokered a pricing agreement allowing the upstream steel mills to remain sustainable in the domestic market while providing a competitive fair price for the downstream industry. 

INEVITABLE DEMISE

Earlier this month, the National Employers’ Association of South Africa (Neasa) bemoaned government’s efforts to try to keep the steel mill alive. The association said government was not helping anyone by endeavouring to keep AMSA’s Saldanha plant open.

“Over and above the 20% duties preventing the downstream steel industry from importing cheaper and better quality steel, the DTIC is taking its efforts to save an unsustainable enterprise to an unprecedented level,” Neasa CEO Gerhard Papenfus stated in a release on December 4.

The DTIC had engaged with AMSA’s management on support that could reduce costs in respect of electricity, water and rail tariffs, which will provide “considerable cost savings” to Saldanha Steel.

However, Neasa felt there was no cost saving involved and that someone was paying along the line.

“The DTIC solution is merely a subsidy. In the case of protectionist duties, the steel downstream industry is bearing the brunt.

“Cheaper electricity, water and transport amounts to a ‘double whammy’ for the downstream industry. For the taxpayer, a subsidy amounts to keeping yet another deceased institution on life support,” Papenfus said.

He added that unless an institution could sustain itself and prove its worth, it was doomed to fail.

AMSA declared that the Saldanha Steel plant could not be run profitably and that the possibility of an outside buyer coming to its rescue was remote.

“But, surprisingly, there was talk about just such a buyer, which raises concern that the plant will be offered with the advantage of protectionist duties, cheaper power, rail and water.

“If this is the case, South Africa will be locked in a deal that will have disastrous consequences for the steel industry and South Africans,” Papenfus noted.

He believes AMSA is a strategic liability instead of a strategic asset, stating that unless a prospective buyer can prove that the business will contribute to South Africa without protectionist duties and subsidies, the same scenario will play out.