Steel Shutdown: Alarm bells for over 100,000 jobs in South Africa

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ArcelorMittal South Africa’s (AMSA’s) decision to close its long steel business could have disastrous consequences for South Africa’s automotive sector.

In the near and medium term, almost 20,000 jobs will be at risk, and over 100,000 jobs could be at risk over time.

Following a year of talks with the government and other stakeholders, AMSA said that it had no other option but to wind down its long steel business amidst worsening losses.

The group blamed the poor macroeconomic environment, logistics and energy challenges, as well as unsustainable competition from low-cost imports.

The group said the closures would likely affect 3,500 direct and indirect jobs.

However, as a core supplier of speciality steel, AMSA has been central to automotive manufacturing in South Africa, providing high-grade materials that are critical for components in vehicle production lines.

Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers (NAACAM), said that this has been a vital contributor to the competitiveness of the domestic sector, with the exit from the market set to have crippling ripple effects along the automotive value chain.

For the automotive sector, metal fabrication, forming and pressing is one of the largest subsectors.

The ability to source local steel has become a key competitive advantage for the export supply chain. Electric vehicles in the US have components forged in the Eastern Cape using speciality steel from the Newcastle blast furnace.

AMSA is the sole domestic supplier of approximately 70 kilotons per annum of speciality long steel grades to the automotive sector.

The closure at the end of January is set to result in supply chain disruptions and delocalisation in the short term and affect the overall sector’s competitiveness in the medium to long term.

Component suppliers will either need to increase stock or will have to import steel to keep plants operational this year, with the latter increasing costs by up to 25% due to longer lead times, logistics and forex exposure.

“The automotive industry is a significant contributor to South Africa’s GDP and export revenues, with vehicles and components accounting for approximately 15% of total exports,” said Moothilal.

“Any decline in the industry’s cost competitiveness would directly affect its ability to play in global markets.”

Moreover, material changes are subject to extensive approval processes, which could force OEMS to resource entire finished components, instead of raw material, to pre-existing certified global component suppliers.

This would reduce the automotive industry’s contribution to the economy and impact jobs before the year is over.

The local automotive supply chain is intricately linked to local steel production, and the closure could also introduce volatility, meaning that manufacturers could lose lead times and potential delays in production schedules.

With over 115,000 workers in the automotive sector, NAACAM said that the loss of AMSA’s long business could result in the immediate retrenchment of up to 3,000 workers in the sector above those impacted directly by the closure.

If there are any future vehicle plant production line stoppages due to the lack of steel, the reduced production volumes and rising operational costs could force automakers and suppliers to further reduce their workforce to maintain sustainability, with another 13,000 jobs at risk.

“It’s conceivable that coupled with other competitiveness concerns around logistics, OEM volume volatility etc, the plus 100,000 jobs become untenable over time,” said Moothilal.

Government’s response
The Department of Trade, Industry and Competition (DTIC) said that it remains committed to working with AMSA to find a workable and lasting solution.

“It has always been, and continues to be the intention of the government to continue these engagements until a workable resolution to the problems faced by AMSA and the steel industry is reached,” said the DTIC following AMSA’s announcement.

“The steel industry is critical in the reconstruction and recovery plan for the South African economy, particularly, the manufacturing, mining, construction, engineering, and transportation sectors, which are at the centre of the industrialisation, localisation and beneficiation programmes of government.”

“Whilst the immediate task will be on addressing structural issues affecting AMSA’s longs steel business, the broader focus should also be on addressing productivity improvements and supply chain efficiencies, investments in low-carbon technologies, competitiveness and regaining the market share.”

Trade Minister Parks Tau said his department is engaging with AMSA to potentially stop the closures, adding he is hopeful about success.

Government and company officials are engaging “on a daily basis” and met in person Wednesday (15 January), Tau said.

“We are cautiously optimistic,” he said. “We are engaging to avert a situation where there would be a closure — discussions are at a sensitive stage right now.”

Source: https://businesstech.co.za/news/government/807149/warning-for-over-100000-jobs-in-south-africa/

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