Urgent Talks Called to Rescue Vital Steel Plants in South Africa – Find Out Why!

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.South Africa is in emergency talks with ArcelorMittal to avert the shutdown of its two biggest steel mills, the trade minister said, an effort considered “critical” to maintaining investor confidence and the country’s status as Africa’s most industrialised economy.ArcelorMittal South Africa chief executive Kobus Verster said this month the company could no longer delay closing its long steel plants in Newcastle and Vereeniging, due to high energy and logistics costs, weak GDP growth and an influx of cheap steel imports from China.The mills’ closure would be a severe blow to President Cyril Ramaphosa’s ruling coalition, which came to power in June vowing to revive manufacturing and reverse economic stagnation after a decade of growth below 1 per cent annually.While about 3,500 jobs would be cut, experts say many thousands more can be at risk as the loss of production ripples through other industries.Ramaphosa this week met ArcelorMittal executive chair Lakshmi Mittal in Davos to discuss solutions to keeping those mills open, according to Parks Tau, South Africa’s minister of trade, industry and competition. Tau said the pair agreed to “intensify the discussions under way between us and explore further options”.“We want to avert the closure of ArcelorMittal’s long steel business. South Africa absolutely does need to have this capacity, given our infrastructure plans, so we’re in discussions with ArcelorMittal on various options,” Tau told the Financial Times. ArcelorMittal declined to comment on the discussions.South African minister Parks Tau: ‘We obviously want to work with ArcelorMittal, but since the country needs this long-steel capability, we need to keep our options open’ © Rodger Bosch/AFP/Getty ImagesRamaphosa, whose African National Congress party was forced into coalition rule after last year losing its majority for the first time since the end of apartheid, has made attracting foreign investors a core tenet of his rule but has had limited success.During a keynote address in Davos, Ramaphosa said South Africa had “solved” a decade-long power crisis and was now open for business. But delays in building new rail lines, power line towers and fixing frayed infrastructure are key reasons why South Africa’s GDP growth remains stubbornly low.In a sign that talks with ArcelorMittal may fail, Tau said the government was also speaking to “an array of players” who had shown an interest in building this capacity, either by taking over the steel mills or starting new operations — though he declined to name them. Smaller local steel operators include Scaw Metals, Cape Gate and Unica Iron and Steel.“We obviously want to work with ArcelorMittal, but since the country needs this long-steel capability, we need to keep our options open,” Tau added.ArcelorMittal South Africa has struggled with a lack of demand for locally produced steel, as the government’s promised infrastructure programme has failed to materialise. Bought by Lakshmi Mittal’s conglomerate in a landmark 2004 privatisation deal, the share price of Africa’s largest steel producer has shed 98 per cent since then, and it is now loss making.The planned closures at the end of January would shutter the country’s only local source of long steel, used in mining, agriculture and electricity transmission. But it is South Africa’s automotive industry — the largest manufacturing sector in the country, contributing about 5 per cent of GDP — that would be hardest hit.RecommendedA number of multinational vehicle manufacturers, including BMW, Ford, Mercedes-Benz, Toyota and Volkswagen, produce more than 600,000 vehicles in South Africa every year, using components made with steel from those ArcelorMittal mills.Analysts estimate that as many as 100,000 jobs in industries that depend on ArcelorMittal’s steel can be at risk — a concern for the government given the country’s intractable unemployment rate of 32.5 per cent. The news has sparked panic.“This risks deindustrialising South Africa entirely,” said Charles Dednam, head of the South African Iron and Steel Institute. “Already, there are companies which have closed as a result of ArcelorMittal’s decision. And in the longer term, there are manufacturing capabilities that South Africa will lose completely.”