Closure of Amsa Newcastle should come as no surprise

You’d think, from all the outrage, that ArcelorMittal SA’s (Amsa’s) decision to shut down its long-products division was a surprise.

But Amsa CEO Kobus Verster has been trying to shut down his loss-making reinforcing bars, beams, rails and profiles business for years.

Only in November, he told workers at the Newcastle plant there was no way to avoid closure.

It would begin in January, sparing workers an even more bleak Christmas.

Amsa is the biggest integrated steelmaker in Africa (meaning it makes steel from scratch and also then mills it into long product and flats, such as plate and coil).

It is the old Iscor, which Mittal bought from the state 20 years ago.

Fed by huge iron ore deposits in the Northern Cape, the company made long products in Newcastle and flats at its plant in Vanderbijlpark.

An enormous plant commissioned in Saldanha in the 1990s specifically to export through the port there was shut down six years ago.

The decision to shut Newcastle was first made in 2023 and only desperate negotiation from an ANC government fearful of a huge industrial policy failure on the eve of a general election persuaded Verster and his board to plough on.

Now 3,500 direct jobs will be lost.

This is a profound policy failure.

Steel was to have been the core of the re-industrialisation of SA.

Former trade, industry and competition minister Ebrahim Patel’s first master plan, his glorious vision of an African manufacturing rebirth, was steel.

With Amsa at the summit, he would build a new industry and place new black businesses at the centre of it.

Typically, the ANC and President Cyril Ramaphosa, suckers always for the promise of “transformation”, eagerly bought in.

But it has all turned out to be hubris.

Patel’s successor, former Johannesburg mayor Parks Tau, is now stuck with a failing key producer and string of smaller new and reconstituted mini-mills and foundries that melt down scrap metal rather than make their own, and would also fail were it not for the state defending them with mountains of money.

ANC and government thinking on industrialisation is deeply chaotic.

Verster made it clear when he formally announced the closure of Newcastle that as far as he was concerned it was the state’s defence of the mini-mills that made it impossible to continue producing long products.

What has happened is that in addition to protecting Amsa through stiff import tariff increases on practically every product Amsa requested, Patel also undermined it by creating rules that cut the costs of scrap metal to the mini-mills substantially.

In turn, the scrap that recyclers are forced to sell them at low prices is converted mainly into long products that compete with Newcastle.

Scrap metal dealers are forced to offer what they have to local mini-mills.

The seller also has to pay the costs of transporting the scrap to the mini-mills, a tough ask for a merchant in Cape Town, with most mini-mills located in Gauteng.

They cannot enter the export market (where prices are better) without a licence, and even then what metal of any quality remains attracts a hefty export tax.

One of the results of this is that scrap is being stockpiled, often out of sight, or illegally exported.

And, of course while Amsa has been able to resort to world trade rules to press for tariff protection against subsidised (mainly Chinese) imports, it has had no defence against subsidised local steel.

The subsidies are enormous.

Through the Industrial Development Corporation the state has spent more than R14bn supporting the

new mini-mills. And without continuing support it isn’t clear any would survive.

It may be the price of our politics.

Former president Jacob Zuma launched the black industrialist programme that Ramaphosa has continued to champion as evidence, somehow, that the ANC is delivering black wealth and muscle, just as white governments began to do a century ago.

But times have changed, and 30 years on the jury must still be out.

Racial transformation, specifically BEE, has had negligible effects on economic growth or, indeed, on industrial output.

It has encouraged no foreign industrial investment, which would surely be central to a manufacturing-led economic revival.

Instead of chasing the right investments we chase political points.

BEE may look good and may even be the right thing given our past.

Indeed, the ANC itself may have many positive qualities, but getting anything done is not one of them.

A clear-eyed view of our dire social and economic situation would agree on only one solution — productive investment, more foreign investors, fewer rules, more technology.

But no-one is interested, and little wonder.

Loud voices have been typically quick to argue that Amsa should be nationalised.

They forget how the ANC hounded it for cheaper steel, or how Eskom wasn’t allowed to buy its steel for its pylons until it cut prices.

Those chickens are now home to roost.

Our real problem here is leadership.

Another reason Verster is shutting Newcastle is that Transnet can’t reliably deliver the iron ore the plant needs.

The obvious need is to make the railways more productive, but Amsa ran out of time.

As are we all.

Ramaphosa is unbelievably ponderous.

He finally has 10 top infrastructure projects lined up for the year, but Amsa won’t be supplying the rebar for those even if they do go ahead.

It will now concentrate on its flat steels business out of Vanderbijlpark, presuming the state will continue to protect it.

Already, though, the biggest mini-mill operator in the country, Scaw Metals, has installed kit to be able to make flat steels out of scrap.

Scaw was a Patel favourite in his day, and he showered it with support.

It is clear that one way or another it will end up competing with Amsa in flat products the same way it did in longs.

And we know now how that has ended.

• Bruce is a former editor of Business Day and the Financial Mail.