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South Africa: Storm clouds gather around ArcelorMittal SA
ArcelorMittal SA shutting down steel plants from coast to coast is strengthening the case for opponents of the privatisation of state-owned entities (SOEs).
More than 500 workers at the small seaside town of Saldanha in the Western Cape stand to lose their jobs after Arcelor announced it was winding down its steel plant in the area.
- Overall, it is estimated that more than a thousand jobs in the area will be affected as a result of the closure.
The move forms part of Arcelor’s review of its strategic asset footprint, which looks set to affect the company’s operations in Newcastle, KwaZulu-Natal, as well. The review encompasses the company’s entire steel portfolio in South Africa. However, its coking business and impending acquisitions will not be affected.
- “The outcome of the review may result in the closure of certain operating sites, individual plants and production areas, and the consequential concentration of operations at the remaining sites. Such decisions would be taken as a result of the affected business areas being no longer financially viable,” the company said in a market announcement.
Sign of tough times
With growth of just 1% in South Africa, closures and job losses are mounting across the economy.
Back in 2006, ArcelorMittal South Africa’s parent company, ArcelorMittal, completed its acquisition of and merger with state-owned steel producer Iscor (the South African Iron and Steel Industrial Corporation) at the height of the commodities super cycle.
That commodities streak was fuelled by China’s insatiable appetite for steel, driven by the country’s economic surge and construction boom.
ArcelorMittal’s merger with Iscor and the formation of ArcelorMittal South Africa resulted in the creation of the world’s biggest steel producer, and the dominant player in the rest of the continent.
What’s killing Arcelor
But a slowdown in China’s economy and the country’s massive steel stockpiles have reversed the initial gains ArcelorMittal made after its entry into South Africa.
Domestically, South Africa’s construction sector is in a growth chokehold and a state of sustained decline.
The South African government’s infrastructure programme has failed to gain sufficient traction. These factors have put a damper on steel demand, as well as exports.
- “Saldanha […] has lost its structural competitive cost advantage to effectively compete in the export market, mainly due to raw material and regulated prices. [The plant] is suffering severe financial losses and these are forecast to continue for the foreseeable future. The process of winding down Saldanha’s steel operations to a state of care and maintenance will begin immediately and is anticipated to be completed during the first quarter of 2020,” ArcelorMittal South Africa said.
In the six months ended 30 June 2019, ArcelorMittal South Africa reported:
- a 2% drop in South African steel consumption.
- a 13% decline in international steel prices.
- a 4% decrease in liquid steel production and a 9% reduction in steel sales volumes.
- a 15% rise in the cost per tonne of liquid steel.
The company posted an operating loss of R222m, and announced it was restructuring.
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Case against privatisation
ArcelorMittal South Africa is often used as a cautionary tale of why the government should not allow private companies to take over SOEs.
In the wake of increasing financial rescue packages to SOEs, many have called for the South African government to consider selling some of its parastatals to private sector players.
Unions have resisted this call. Some union formations have pointed to the jobs crisis at ArcelorMittal South Africa and other companies, saying when the initial Iscor deal was sold privatisation was billed as the solution to ensure the erstwhile state-owned steel operator’s long-term sustainability.