ArcelorMittal South Africa (Amsa) burnt through R1.9 billion in 2024, which I think we can all agree, is a lot of money, especially for a company with a market capitalisation of R1.1 billion, raising their total debt by roughly the same amount. On 6 January 2025, Amsa again announced they would be closing their Newcastle operation (they first announced this on 28 November 2023, but didn’t close it), causing a fair amount of panic. The IDC provided them with a credit facility of R1.7 billion, with repayment terms to be determined, allowing Amsa to keep operating Newcastle until at least 31 August 2025.
In a recently answered parliamentary question, Minister Tau explained that “the DTIC and other relevant government institutions have been in constant engagement with Amsa stakeholders to explore initiatives and interventions aimed at saving and/or mitigating the impact of the closure of the Amsa longs business.”
Tau explained that “[i]n June 2024, IDC provided Amsa with a 12 months’ R1bn working capital facility. This facility was restructured in January 2025 and there are no arrears. Furthermore, in February 2025, IDC and the DTIC provided Amsa with a R380m shareholders’ loan for working capital, particularly aimed at averting the closing of the longs business plant in Newcastle, KwaZulu-Natal.”
All of this money moving around has caused a bit of a kerfuffle, with the Electric Steel Producers (ESP – ja, seriously, they saw this coming?) of South Africa saying “a financial bailout of the long steel operations of troubled steelmaker Amsa will further distort market conditions in a steel sector already under severe domestic and international pressure.”
The ESP members are all mini-mills: Scaw Metals, Cape Gate, Veer Steel Mills, Unica Iron and Steel, Force Steel, and Coega Steel, who make steel using ferrous scrap as feedstock. These companies, along with a few others, are the beneficiaries of enormous amounts of government largesse (or market distortions to quote ESP). The Price Preference System (PPS), gives them between R6.5 and R8.5 billion in subsidies per year, plus another R500 million or so of protection in the form of export duties. Oh, and add to this friendly finance from the IDC of around R14 billion, so quite a lot.
When Amsa first announced the closure of Newcastle, they identified three main reasons for the closure:
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- “In the past seven years, the country’s apparent steel consumption (ASC) has reduced by 20%, reflecting 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 transport and logistics costs [and] energy prices, exacerbated by the well-publicised logistics failures and their resultant cost impact, and the prevailing electricity challenges which the country faces.
- The introduction of a preferential pricing system for scrap, a 20% export duty, and more recently, a ban on scrap exports has allowed steel production through the electric arc furnaces route an ‘artificial’ competitive advantage”
It doesn’t look like any of these problems have been addressed, although Mittal seems quite upbeat, noting in their Sens announcement on 31 March 2025, that “[t]he South African Government (“Government”) will use the Deferral Period [up to 31 August 2025] to expeditiously address the structural problems previously identified by [Amsa] (scrap PPS, scrap export tax, tariff measures including safeguards, and others) to put the Longs Business on a sustainable footing. During the Deferral Period, Amsa will focus on implementing further improvements to optimise the Longs Business operations, enhance product offering and supply chain reliability for customers, and advance its commitment to localisation, particularly through continued collaboration with the industry, resulting in a superior performance for the business. Based on the engagements between [Amsa] and Government to date, it is the Company’s understanding that a more market-related and less punitive PPS and export tax on scrap dispensation will be implemented soon, and that the implementation of safeguards is imminent.”
Reducing PPS and the export tax poses an existential threat to the mini mills who cannot survive without government support. The problem is, something has to give and right now, and that still looks like it will be Mittal, not some of the mini mills. Is there a way for all of them to survive.? No. Not even if demand surges? It will be better, but still no. To understand why, we need to see what happened with Mittal’s prices after they received the IDC money. On 14 April, Amsa put out a notice to their clients, dropping their price on wire rod by 23% to R10 000 per ton. They have no choice if they are to compete against the mini mills, which are cheaper than imports. Doubt this? The average import price for imported wire rod was R11 631 per ton (FOB) for the last year and only R5 million worth of product was imported (434 tons). The mini mills, accounting for 75% of the long steel sold in South Africa maintain that large market share by undercutting even imports from China and they can do this because of the market distorting subsidies they receive.
For Amsa Newcastle to survive, will require a lot more than money. If the problems they identified are not addressed, they will burn through the money from the IDC and we will be back here. If government demand increases, it will be met by product from the mini mills, because the subsidies give them an ability to keep their prices low. Amsa on the other hand, has to pay back the IDC loan, which will be burnt through even quicker this time, given the steep discount they are providing on long products to simply stay in the game.