Shares of ArcelorMittal South Africa took a significant hit as the company announced the decision to place its major Newcastle and Vereeniging long steel operations in care and maintenance due to a lack of demand. The share price plummeted nearly 30% to 100 cents earlier on Tuesday, although it recovered some losses by midday, showing a 7% decline to 127 cents. Over the past year, the shares have experienced a decline of more than 70% in value.
The decision to halt the long steel operations, which encompass wire, rods, railway rails, and bars, was attributed to high logistical and transportation costs, elevated energy prices, and the challenges posed by load shedding. The steelmaker, despite implementing aggressive cost-cutting measures and productivity initiatives in recent years, has been unable to counteract the impact of a sluggish economy and a challenging trading environment, with South Africa’s steel consumption dropping by 20% in the past seven years.
The move affects over 3,500 employees, and ArcelorMittal South Africa highlighted its efforts to save the operations through various cost-cutting strategies and increased savings on raw materials. However, these initiatives proved insufficient in the face of the adverse economic conditions. CEO Kobus Verster stated, “Despite these best efforts, the initiatives were unable to counteract the cumulative effect of a slowing economy and a difficult trading environment.”
The company emphasized that structural market issues, including high transport and logistics costs, escalating energy prices, load shedding, a new preferential pricing system for scrap, a 20% export duty, and a ban on scrap exports, are beyond its control and do not seem likely to be resolved in the foreseeable future. The decision to wind down the operations is seen as necessary to ensure the long-term sustainability of the business.
Verster expressed the company’s commitment to maintaining a sustainable business, stating, “As difficult as these circumstances are, we have a duty to ensure that the business remains sustainable in the long term, in the interests of the company and its stakeholders. The remaining business, after the wind down, will be substantially more profitable and able to invest the appropriate capital in product development and available growth prospects.”