ArcelorMittal Hands South Africa Responsibility for Mill Rescue

ArcelorMittal South Africa (AMSA), the country's leading steel producer, has announced the wind-down of its Longs Business by early 2025, citing unsustainable operational challenges, weak market conditions, and rising costs. The closure, affecting around 3,500 jobs, underscores the severe impact of global overcapacity and low international steel prices. AMSA anticipates significant financial losses for 2024 but remains committed to its long-term strategy, focusing on the sustainability and growth of its Flats Business while supporting South Africa's industrial development.

The South African government and the Department of Trade, Industry & Competition (dtic) have stepped in to forge a rescue package for AMSA's threatened steel mills, aiming to avoid the closure and job losses. Intensive efforts are being made behind the scenes to secure a deal that would keep the mills operational and support the company's long-term sustainability.

Networth Investments, with the support of the government and the Industrial Development Corporation (IDC), has extended an offer to buy out a controlling stake in AMSA from its parent company, ArcelorMittal Holding AG. The offer, valued at R4.7 billion, includes a commitment to invest around R16bn to fund upgrades and decarbonisation projects, with the aim of avoiding the impending shutdown of Newcastle, Vereeniging, and Highveld AMRAS Steel mills.

ArcelorMittal Holding AG has thus far rejected the offer, stating that they are not contemplating the sale of their interest in AMSA. However, the state of the market has not changed since the offer was made, and the shutdown of the long steel business was already in planning and contemplation by ArcelorMittal AG at the time of the rejection.

Networth's strategy for the proposed buyout and turnaround of AMSA involves a two-fold approach. Firstly, within 8 months of 2025 up to 2028, the transition period, the plan is to reduce the iron ore and coking coal delivered cost to Newcastle and lower energy by around 40% by holding inventory on a 90 days basis, operating the Newcastle blast furnace at over 90% capacity, returning Newcastle to low cost production, and exporting 75% of the competitively priced Newcastle steel production output to global markets through agency agreements with steel trading companies of international repute and significant distribution networks. Secondly, in the post-transition period – 2028 onwards – the plan is to diversify AMSA's plant product range by adding export-oriented high value-add stainless and speciality steels and to grow AMSA's turnover by around R60bn with a sustainable EBIDTA margin of 21%, base case.

The proposed rescue package aims to address the immediate and long-term challenges faced by AMSA by providing financial support, strategic interventions, and policy changes. By keeping AMSA's steel mills operational, the government seeks to avoid job losses and support the company's long-term sustainability. However, the success of the rescue package will depend on the willingness of ArcelorMittal Holding AG to engage in negotiations and the ability of the government and Networth Investments to secure a deal that benefits all parties involved.

In conclusion, the South African government and the dtic have taken a proactive approach in addressing the challenges faced by AMSA, aiming to secure the company's long-term sustainability and support South Africa's industrial development. The proposed rescue package, if successful, could help AMSA overcome its immediate and long-term challenges, ensuring the continued operation of its steel mills and the preservation of thousands of jobs.