Some steel sector companies have resorted to using steel billets as a stop-gap measure in the mounting shortage of long steel products, as an ominous silence hangs over the fate of ArcelorMittal South Africa (Amsa), whose January-end deadline to mothball operations in Newcastle and Vereeniging looms heavily over the industry.
On the eve of Amsa releasing its financial results on Friday and possibly making a public announcement on the final decision regarding its plants, participants at a webinar hosted by XA Global Advisors discussed the potential impact of Amsa’s decision.
Participants said this directly impacts the future availability of long steel products in the Southern African Customs Union.
Billets and blooms are semi-rolled products used by rolling mills for manufacturing steel products such as rounds, wire, rebar, or structural sections. They can serve as an intermediate form of steel, but industry participants noted that they are a poor substitute for long steel products and require additional processing to replace them.
"There is product arriving from Zimbabwe. I drove past three long trucks and trailers with 30-metre billets on the back, all coming from Zimbabwe. Someone is buying that, someone is rolling it into product, someone is taking advantage of that, and they are going to close the gap," said Mike Benfield, the CEO of MacSteel.
Pieter du Plessis, the chief operating officer of XA Global Trade Advisors, said the steel industry is running out of runway for its orders of long steel products, with most processors looking to finish stocks by the end of the month.
"It is not cash that is the challenge here: it is the business itself, the state of the sector, the manufacturing value chain, and lack of demand. You don’t fix that with R1 billion. It might tide Amsa over if you can sign a R100 billion infrastructure programme, predominantly based on steel, and place firm orders with Amsa. Amsa is staying their course. They are following the decisions they need to follow in terms of labour legislation and common sense, overseeing their project plan to achieve those objectives of separating operations at these facilities," Du Plessis said.
According to unconfirmed reports, government officials were considering a R1bn rescue package for Amsa. This package would have encouraged the company to reverse its decision and keep its steel operations running, saving jobs in the process.
Earlier this month, Amsa said it had no choice but to wind down its long steel business amid high energy costs, logistics constraints, and an export scrap tax issue.
Although Amsa engaged with stakeholders throughout 2023 to find a solution, it said that the initiatives sought would not change the fundamentals of the structural problems.
Its decision will affect around 3 500 direct and indirect jobs, while the total number of retrenchments will depend on agreed alternatives and consultation outcomes.
Du Plessis noted that the uncertainty is delaying a number of urgent interventions required to avoid massive disruption.
"When Amsa halts its production, we still have to access product. The common thread is that, in the short to medium term, the remaining producers will probably not be able to meet the volume of the bread-and-butter products, the mainstream products. That may change once they have a chance to build capacity, but it will be a short to medium-term issue — maybe a year, 18 months at least. The volume is not quite there yet, and there will be a ramp-up required.
“For the more niche products, it will take even longer. So steps have to be taken to make these products freely accessible to industries that can no longer be supplied by Amsa, provided the domestic industry and remaining operators cannot fill those gaps or take up the slack," Du Plessis said.