Government promises to subsidise Arcelor-Mittal

ArcelorMittal South Africa (AMSA) stated on Wednesday that it is negotiating with the government and other entities for a subsidy to potentially delay the closure of its long steel operations. On February 28, AMSA announced it would halt production of fencing material, rail, rods, and bars by April, following unsuccessful talks with the government to sustain the unprofitable plants.

According to unofficial government sources, the Minister failed to attend a scheduled meeting with Arcelor-Mittal to discuss their issues late last year, which increased the uncertainty surrounding their continued investment.

But now the government is nearing an agreement to provide a subsidy to AMSA to maintain operations at its steel mills. Initial government support would involve approximately R500 million ($28 million) to cover steelworkers’ wages for six to eight months. Additional bridge financing is under consideration through the state-owned Industrial Development Corporation (IDC), which would increase its current 8.2% stake in AMSA.

The government, via its trade department and the IDC, is also encouraging AMSA to evaluate offers for the mills in Vereeniging and Newcastle, slated for closure. These mills produce long steel products, including specialized grades unavailable from local competitors, which are tied to the government’s infrastructure-based economic strategy and support for the car-making and mining sectors.

A decision could be announced this week, as AMSA’s board reviews the proposals, per the sources. AMSA, supported by its parent company under Lakshmi Mittal, is requesting around R3 billion to operate the mills for another year and build inventory for clients like Volkswagen AG and Isuzu Motors. AMSA and the IDC declined to comment on specifics, though the IDC confirmed ongoing talks to preserve the mills’ operations.

Previously, the IDC supplied AMSA with working capital this year, marking at least its second intervention as the company’s largest shareholder after the parent entity. The IDC is also funding a R12 billion car-manufacturing plant with Beijing Automotive International Corp, relying on AMSA’s specialized steel products like spring steel. The IDC stated, “Securing long steel supply, particularly outside of the commodity products, is a key strategic focus.”

AMSA first signaled potential withdrawal from South Africa on November 28, 2023, announcing the closure of its long steel business, including Newcastle and Vereeniging Works, due to economic challenges, high costs, and inadequate policy support, impacting up to 3,500 jobs. Local competitors, mini mills using subsidized scrap metal, have also received IDC funding, affecting AMSA’s market position. AMSA’s share price has dropped over 90% since 2005, valuing it at under R1.5 billion despite R40 billion in annual sales, though it rose 30% in the past two days in Johannesburg.

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