Return of Iskor? ArcelorMittal faces potential nationalisation

ArcelorMittal South Africa, the country’s foremost steel producer and a subsidiary of the global ArcelorMittal group, is engaged in advanced talks for a state-led acquisition by the Industrial Development Corporation (IDC), a government-owned entity. The proposed deal, valued at approximately R8.5 billion ($460 million), including debt, aims to avert the closure of critical steel mills and safeguard thousands of jobs.

The IDC, holding an 8% stake in ArcelorMittal, making it the second-largest shareholder, completed a due-diligence study last month and is seeking a financial partner to support its bid. Negotiations involve the IDC, the Department of Trade, Industry and Competition (DTIC), and ArcelorMittal’s head of mergers and acquisitions, Ondra Otradovec, who recently visited South Africa to advance discussions.

Regarding the potential nationalisation deal, all parties have declined to comment, citing the confidential nature of the talks.

ArcelorMittal’s South African holds were previously known as Iscor, the Iron and Steel Corporation, established in 1928 by the South African government to develop a domestic steel industry, leveraging the country’s abundant iron ore and coal resources. Initially state-owned, it began operations with a steelworks in Pretoria, expanding significantly post-World War II with major plants in Vanderbijlpark (1947) and Newcastle (1976). By the 1980s, Iscor was a cornerstone of South Africa’s industrial economy, producing millions of tonnes of steel annually and employing thousands.

Privatised in 1989 to reduce state expenditure, it listed on the Johannesburg Stock Exchange. In 2003, it was acquired by Mittal Steel after the 2006 merger forming ArcelorMittal globally. Amsa inherited Iscor’s key assets, including Vanderbijlpark, Newcastle, and Vereeniging mills, but has faced challenges from rising costs, government regulation, racial quotas, import competition, and infrastructure issues, culminating in recent threats to depart.ArcelorMittal owns the country’s last long-steel mills in Newcastle and Vereeniging, which produce grades essential for the automotive and mining sectors, employing around 3,500 workers directly and supporting approximately 100,000 jobs in supply chains. The company also runs a flat-steel plant in Vanderbijlpark, with idled operations in Pretoria and Saldanha, and a closed iron-ore mine that could potentially be revived.

The company’s financial and operational difficulties have intensified, driven by high energy costs, unreliable rail services, competition from cheap imports, and government policies favouring raw material exports, notably steel scrap, a sector which relies on a vast network of metals theft from national infrastructure, and is often run by criminal enterprise or ruling party cadres. In November 2023, ArcelorMittal announced plans to close its Newcastle and Vereeniging mills, prompting earlier interventions, including loans from the IDC and DTIC to sustain operations temporarily, effectively bailing the company out.

Recent negotiations have reportedly faltered over valuation disputes, with offers reaching up to R7 billion discussed but not finalised. The proposed acquisition is framed as a “re-nationalisation,” recalling the company’s origins as the state-owned Iscor. Labour unions, including the South African Federation of Trade Unions (SAFTU), have vocally supported state ownership to stem job losses and bolster the steel industry. SAFTU’s general secretary, Zwelinzima Vavi, has publicly urged re-nationalisation.

The National Employers’ Association of South Africa (NEASA), representing engineering sector businesses, has described prior efforts to rescue ArcelorMittal as “unsuccessful”. Head of NEASA Gerhard Papenfus dismissed the bailouts as “merely delaying the inevitable”, insisting that taxpayers and secondary steel users would again “bear the brunt” of ArcelorMittal’s “crippled attempt at crawling to its inevitable death”.