South African steel buyers expect the planned closure of the country’s only iron ore-based long products mill to result in rising prices.

“This is not a steel industry problem, this is a South African problem. The domino effect we expect will cost jobs into the hundreds of thousands and destroy trust in our steel market,” said Neels van Niekerk, CEO, International Steel Fabricators of South Africa in a Moneyweb interview.

He is not the only one concerned. The South African downstream steel industry has urgently appealed to both steel producer ArcelorMittal South Africa (AMSA) and the government to find immediate solutions that will allow the continued operation of the three AMSA plants that make up the company’s long steel business in South Africa.

More than 20 industry associations, including three scrap recycling associations, and industry experts came together in a crisis summit in Johannesburg on January 17 to determine an urgent plan of action to prevent the imminent closure of the AMSA plants.

The industries represented at the summit included construction, automotive, mining, electro-technical, electricity transmission, aerospace and defence, rail, wire, fasteners, concrete reinforcing, cladding and roofing, and rail, most of them dependent on AMSA as the only local producer capable of supplying the bulk of their required long product steel input.

The closure of the AMSA’s long steel products operation in Newcastle, KwaZulu-Natal, is likely to cause considerable turbulence within the local steel sector, with potential projected knock-on effects including product shortages, quality issues and even price increases

The closure of the AMSA’s long steel products operation in Newcastle, KwaZulu-Natal, is likely to cause considerable turbulence within the local steel sector, with potential projected knock-on effects including product shortages, quality issues and even price increases, according to the Southern African Institute of Steel Construction (SAISC) Chief Executive Officer, Amanuel Gebremeskel.

The production and supply of all long products will be affected, including UB, UC, IPE, angles, channels and rods. This will no doubt affect the local and regional market considerably, especially for those products such as UB and UC profiles where AMSA is the sole remaining local producer.

Mini mills are likely to play a crucial role in making up the shortfall that will be left by the mill closure, having to expand and ramp up their production accordingly to procure new sources of structural steel in the case of merchants and service centres, and billets or scrap metal in the case of the mini-mills. However, this will inevitably take time.

In addition, while we have several mini-mills producing good quality long steel products, their range may be limited. The mill closure may also have an adverse effect on the price of steel. In turn, various projects which are in the planning stages may be adversely affected both in terms of cost and scheduling.

In his address to the summit, AMSA CEO Kobus Verster repeated previous assertions that the company’s main request was a level playing field. He also requested that AMSA be afforded the same tariffs on energy and transport as other producers, and that existing policy interventions on scrap metal, which give an unfair advantage to local scrap-based mini mill competitors, be removed.

The mini mills exclusively use scrap steel for their iron content. Owing to the capacity, capability and quality constraints of the mini mills, the formal downstream industries can only use a very limited quantity of the mini mills’ output, making the general and informal industries the main clients of the mini mills.

AMSA’s 1.7 million tons a year Newcastle blast furnace is currently the only local mill capable of producing long steel from iron-ore. The company’s Vereeniging electric arc furnace has further capacity of 250 000 tons per year, producing high-quality and speciality steels from scrap.

The Vereeniging operation is currently idled, meaning that the bulk of the long steel demand is met by the Newcastle furnace, which cannot be switched on and off like a mini mill.

The long steel requirements of the formal downstream, which only the AMSA mills can supply, equates to about 35% of current local demand, being about 400 000 tons to 450 000 tons per year.

AMSA’s 1.7 million tons a year Newcastle blast furnace is currently the only local mill capable of producing long steel from iron-ore. The company’s Vereeniging electric arc furnace has further capacity of 250 000 tons per year, producing high-quality and speciality steels from scrap

In an interview towards the end of last year Verster said: “We’ve been contemplating this for more than a few years now. Over the past years we’ve done some restructuring, we did footprint changes and we shut some of our plants. We’ve implemented a lot of actions to try and get the place to a breakeven, but the external and structural impediments are just too difficult to overcome.”

“If you look at steel demand that has reduced by 20% over the last seven years. So we are consuming in South Africa a mere four million tons. We’ve got capacity of probably a bit over eight to nine million tons in the country. How do those things change?”

“Our remaining business is a flat products business, high-value products, a strong business. But one should be careful that the same impediments are not impacting that business long term.”

Specific shortages
Respondents to research conducted for the December edition of MEPS International’s Developing Markets Steel Review said that domestic mini mills produce commodity grades of long products. The loss of ArcelorMittal’s Newcastle output means that specialised grades and long products of certain dimensions will no longer be produced in the country.

Consequently, the closure of the longs mills in Newcastle and Vereeniging is expected to increase South Africa’s reliance on imports. The country’s steel imports grew by almost 55%, to 1.43 million tons, in the four years to 2022. By the end of October 2023, 1.25 million tons of steel had been imported into the country. This is despite the decline in consumption noted by AMSA, which said that South African steel demand had now fallen to four million tons per year.

In its announcement in November 2024 AMSA cited a 20% fall in demand over the last seven years to four million tons, rising energy prices and supply disruption, and a prevailing scrap advantage over iron ore-based production due to government policies.

A 20% export duty and the recently imposed ban on scrap exports have brought domestic scrap prices down to R4 780 per ton for grade 201. This is equivalent to $260 per ton, well below the current global scrap price of $430 per ton. As such, the policy has benefited South Africa’s EAF-based mini mills.

Nonetheless, high transport costs and South Africa’s electricity load curtailment – prompting regular power outages – undermine domestic steelmaking in general, according to ArcelorMittal South Africa.

The steelmaker is responsible for around half of the country’s crude steel production. It currently produces flat products at its operations in Vanderbijlpark and Saldanha and longs in Newcastle and Vereeniging. The planned closure of the long products operations will affect approximately 3 500 employees.

Respondents to MEPS International’s December research revealed that AMSA has now asked for its final long product orders. The business plans to wind down the Newcastle operation by the end of quarter one 2024.

Some long product customers expressed hope that the move may not go ahead, however. They said that the move may be intended to stimulate support from the South African government.

Wider economic concerns
Despite concerns about domestic steel production, South Africa’s Department of Trade, Industry and Competition were among the authorities to question the European Commission’s CBAM regulations earlier this year.

In its response to the European Commission’s consultation over the emission-based import measures it suggested that the regulations conflicted with the Paris Agreement and breached World Trade Organisation (WTO) rules. It also said CBAM risked “exacerbating inequality, poverty and unemployment” in developing nations.

Economic circumstances closer to home may now exert a greater influence on South Africa’s steel industry. Buyers are likely to experience the constrained supply of certain products and rising prices as a result.