ArcelorMittal's South African unit has made the critical decision to wind down its long steel products business, driven by significant economic and structural challenges that have rendered its operations unsustainable. As announced in a Friday release, this decision follows a series of mounting pressures on the business.
The shares of ArcelorMittal saw a slight dip of almost 1% in Amsterdam, while its subsidiary, ArcelorMittal South Africa, experienced a staggering 26% drop in Johannesburg. The factors contributing to this closure are numerous and include persistently high logistics and energy costs, a drop in demand, and stiff competition from low-cost steel imports, particularly from China.
These elements have created an environment that is increasingly difficult for the company to operate within. Additionally, the slow pace of policy intervention from the South African government has exacerbated the situation. Since 2018, the country's steel imports have surged by nearly 50%, while exports have plummeted by 40%. Kobus Verster, the chief executive officer of ArcelorMittal South Africa, expressed deep disappointment over the situation.
"Unfortunately, despite everyone's best efforts, including significant engagement with stakeholders, the structural challenges in the Longs Business were not resolved. While this outcome is deeply disappointing, especially given the economic challenges facing South Africa, we remain focused on securing a sustainable future for the remaining operations," he stated. As a result of the planned shutdown, approximately 3,500 direct and indirect jobs are expected to be affected.
The operations at the Newcastle Works and Vereeniging Works will see significant impacts, as will the rail and structural subsidiary AMRAS. While Newcastle’s coke-making activities will continue, they will do so on a reduced scale. Looking forward, ArcelorMittal South Africa anticipates a "significant decline" in earnings for the fiscal year ending December 31, 2024.
They project that headline loss per share will be between 4.06 South African rand and 4.41 rand, in stark contrast to the previous year’s loss of 1.70 rand per share. The company expects revenue for 2024 to drop by over 5% when compared to 2023. ArcelorMittal has primarily attributed these increased losses to challenging market conditions, compounded by costs associated with the closure of the Longs business, which include staggering charges of 2.7 billion rand. The complete discontinuation of steel production in the Longs business is set to take place by late January, with the full wind-down expected to occur during the first quarter of 2025.
In the interim, the company is pivoting its focus towards strengthening its Flats business and ensuring its long-term sustainability..