By Lehlohonolo Lehana.
The largest steel producer in sub-Saharan Africa, ArcelorMittal South Africa (AMSA) will defer the closure of its loss-making long steel plants to August 31 after getting a R1.683 billion rand injection from Industrial Development Corporation (IDC).
“The deferral of the wind down has accordingly been enabled by a facility provided by the Industrial Development Corporation of South Africa in the amount of 1.683 billion rand,” ArcelorMittal said in a statement.
The IDC facility is repayable by agreement between the parties and subject to, besides others, the financial performance, solvency and liquidity of the AMSA longs business.
The IDC facility is part of a comprehensive package of intended initiatives aimed at positioning the Longs Business for future sustainability and profitability.
The company has also received a Temporary Employee Relief Scheme (TERS) grant to assist in funding employee costs and has undertaken to apply any TERS funding received in respect of employee costs relating to the longs business, which will reduce the drawdown required against the IDC facility.
In return, the steel producer will allow the IDC, which has urged Amsa to consider offers for its mills, to conduct a due diligence exercise on its operations.
The government will use the deferral period to address the structural problems previously identified by AMSA, including the scrap metal Preferential Pricing System (PPS), scrap export tax, tariff measures including safeguards and others to put the longs business on a sustainable footing.
AMSA, meanwhile, will use the deferral period to 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.
The intervention by government and the IDC will assist in keeping the longs business operational while a viable sustainable long-term solution is being sought, AMSA states.
AMSA has thanked the government, and in particular Trade, Industry and Competition Minister Parks Tau for his leadership during the engagement, the Department of Trade, Industry and Competition, the IDC, as well as all stakeholders, including customers, suppliers and organised labour, for their role in supporting the continuation of this critical industrial capacity for the country.
“AMSA values the dedication of its employees and recognises the critical role they play in sustaining the business and its broader contribution to the economy,” AMSA adds.
It further states that it is “very encouraged” by the emerging signs of demand growth in the South African economy, with potential for the steel market, due to recent opportunities emerging in a number of sectors, for example, energy.
AMSA initially planned to shutter the Vereeniging and Newcastle facilities at the end of January, and later postponed by a month to fulfill orders.
Among the demands Amsa said the government will meet is the review of a scrap steel export tax and a forced discount on scrap prices that the company said has given an unfair advantage to local competitors who recycle steel to make their products. Amsa uses iron ore instead.
It’s also reviewing steel import tariffs with a view to protecting the company.
The IDC funds follow more than R1.38 billion of support that the state finance institution provided in June and February.