ArcelorMittal Mothballs South African Plant to Curb Losses

(Bloomberg) --

ArcelorMittal South Africa Ltd. will mothball its Saldanha Works plant to curb losses, as raw-material costs and regulated prices mean the operation can no longer effectively compete in steel export markets.

Saldanha, on South Africa’s west coast, will be placed on care and maintenance in the first quarter of 2020 and its domestic customers will be served from another plant. The closure will affect 550 direct employees and about 400 contractors.

Key Insights

• The company, controlled by the world’s biggest producer, ArcelorMittal, said in September it was reviewing the financial sustainability of major operations. The South African producer in July this year announced plans to cut 2,000 jobs.
• The country’s steel industry faces a “dire situation,” the company said, as it faces high costs for electricity and raw materials, and weak economic growth in Africa’s most industrialized economy. The global steel industry is also struggling, and ArcelorMittal warned last week demand is continuing to weaken.
• Saldanha, once an ambitious partnership between South Africa’s government and industry, is suffering severe financial losses, which are forecast to continue for the foreseeable future, the company said Monday. The next focus of the operational review will be its Newcastle plant.

CEO Comment

• “The Saldanha operations were founded and built on the premise of low input costs, which gave the operation a competitive cost advantage in export markets,” said ArcelorMittal South Africa Chief Executive Officer Kobus Verster.
• “Unfortunately, over the years, that structural cost advantage has been eroded and Saldanha can no longer sustainably and effectively compete in these markets.”

Market Reaction

• ArcelorMittal South Africa has dropped 50% this year.

Read More

• Statement here
• In 2016: ArcelorMittal Plant Review May End Hard South African Lesson

To contact the reporter on this story: Felix Njini in Johannesburg at fnjini@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill, Nicholas Larkin

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