By Loni Prinsloo, Antony Sguazzin and S’thembile Cele, Bloomberg.
Steelmaking tycoon Lakshmi Mittal met President Cyril Ramaphosa in Davos Wednesday as the country seeks to head off the planned closure of steel mills that are crucial to the local economy.
The encounter followed an earlier caucus involving the Indian billionaire, South African Finance Minister Enoch Godongwana, his trade counterpart Parks Tau and electricity head Kgosientsho Ramokgopa. The finance ministry confirmed the meeting with the ministers, while the presidency affirmed that Ramaphosa met Mittal, adding that Tau will take the lead on further discussions.
While officials at the ministerial meeting didn’t reach a conclusion, they discussed the issues that triggered the decision by Arcelor Mittal South Africa that’s known as AMSA, people familiar with the matter said, asking not to be identified because the discussions were private.
The company said on January 6 that a dysfunctional freight-rail service, soaring electricity prices, a low-growth economy and state-imposed discounts on scrap metal — used by local competitors to make steel — prompted its call.
AMSA plans to close three plants — including two steel mills that the auto-making, mining and construction industries depend on — at the end of the month, threatening Ramaphosa’s hopes of spurring a R4.8 trillion ($259 billion) infrastructure boom.
AMSA initially threatened to close the Vereeniging and Newcastle mills — which produce some specialised products that local rivals can’t currently make — a year ago. Twelve months of talks, which the government revived this month, haven’t yielded a solution.
AMSA declined to comment, while Tau and Ramokgopa’s departments didn’t respond to queries. Neither did ArcelorMittal, AMSA’s parent.
The steel producer seeks concessions — including changes to the way scrap is treated — and has lobbied for tariffs on imported steel, the company has said in the past.
Key among AMSA’s complaints is the 2013 imposition of the so-called price preference system, which will only allow local scrap collectors to export the product if there are no local buyers. The state also imposes a 30% discount on the international price of scrap.
In 2020, the government imposed a further 20% tax on exports of steel scrap. AMSA uses iron ore rather than scrap to make steel.
Mittal and the South African government have endured a testy relationship since he took over Iscor, the former state-owned steelmaker, in 2003. AMSA has been accused of boosting prices excessively and under-investing in its plants. In 2016, local antitrust authorities fined it the equivalent of $110 million for anti-competitive behaviour.
Automakers — including Volkswagen AG and Toyota — have asked the government and AMSA to either avoid the closures or at least delay them for 12 months so that they have time to find alternative suppliers. South African investors have made offers for AMSA’s plants, which the company has rebuffed.