How ArcelorMittal South Africa plans to wind down Longs Business

The second half of the financial year was dominated by the announcement of the contemplation of the wind down of the broader Longs Business. Despite best efforts, the ArcelorMittal South Africa initiatives implemented prior to the announcement had not been able to counter the combined effect of:

• Low market demand in key steel consuming sectors, limited infrastructure spend and project delays, resulting in overcapacity in the market and overall weaker business confidence.
• High logistics, energy and security costs, exacerbated by the well-publicised logistics failures and their resultant cost impact, and the prevailing electricity challenges which the country faces.
• Introduction of a preferential pricing system (PPS) for steel scrap, a 20% export duty, and more recently, a ban on scrap exports allowed steel production through the electric arc furnaces which use scrap as input, an ‘artificial’ competitive advantage when compared with steel manufacturers beneficiating iron ore to produce steel.

On 28 November 2023, it was indicated that the Longs Business wind down would be subject to a due diligence and a consultative, and iterative process involving key customers, suppliers, organised labour, and other stakeholders.

Since making the announcement, ArcelorMittal South Africa has engaged with various stakeholders, including Government, represented especially by the Minister of Trade, Industry and Competition, Transnet, numerous industry associations, organised labour, affected suppliers, and community forums, and most importantly customers.

As a result of the various engagements, specific short-, medium- and longer-term interventions were identified, some of which are set out in the Steel Masterplan, to address the above constraints.

ArcelorMittal South Africa is able to announce the deferral of the wind down of the Longs Business to allow for its continued operation for up to six months. During this time, the objective is to further progress and conclude the short-term initiatives, followed by their implementation to secure the targeted benefits.

The short-term initiatives that are being progressed include:

• Port and rail service efficiency improvements with a Transnet leadership who have demonstrated firm intent to cooperate with the Company to narrow the current cost gap, with an undertaking to work together towards addressing further cost optimisation opportunities;
• The export ban on steel scrap was not extended in December 2023 as a first step in addressing those policy measures which gave an artificial cost advantage to lower quality scrap-based steel makers, to the disadvantage of integrated steel
• making facilities that beneficiate mined raw materials (specifically iron ore). The Company will continue to engage with Government on continuing concerns regarding steel scrap metal, which amongst other matters, threaten the existence of small- and medium-sized scrap entrepreneurs and traders, many of whom are members of the Metal Recyclers Association (MRA);
• Expediting demand-side opportunities to improve capacity utilisation in the absence of economic growth, and as envisaged in the Steel Masterplan, to replace imports and facilitate exports. This includes anticipated projects which require investment to increase the local application of high-quality steel profiles;
• Agreement with key customers to a longer-term volume commitment and localisation efforts to create sustainable local supply and enlarge the downstream manufacturing capability to the benefit of both local manufacturers and the Longs Business; and
• Working with key suppliers, service providers and organised labour to reduce the cost structure of the Longs Business.

The timing of the deferral is subject to these in principle agreements being commercially and contractually concluded.

These interventions focus on longer term iron ore pricing, value chain efficiencies to improve customer service and value offerings, targeted investments to improve cost competitiveness, enable value added exports and aid the transition to greener steel, amongst others.