Oren Kaplan

The possible closure of ArcelorMittal South Africa’s long steel plant in Newcastle is a stark reminder of the challenges facing the local and global steel industries amidst weak international and domestic demand.

While any job losses are painful, what has been erroneously suggested in much of the commentary is that if ArcelorMittal’s long steel factory closes its doors, the South African long steel industry would disappear. This ignores the so-called “mini-mills”, which employ up to 5,000 people and already produce around two thirds of the long steel used in South Africa. It is not true to paint the possible ArcelorMittal closure as an end to South Africa’s steel production and industrialisation.

The name “mini mill” can be misleading; these include large-scale operations that contribute substantially to the local and export mining, construction and automobile sectors. Electric steelmakers, or mini mills use scrap metal—from discarded machinery, washing machines, and automobiles—to produce new steel products with electric furnaces. They are becoming more popular globally as their approach is not only less polluting but also more energy-efficient, making it a more sustainable option.

If the Newcastle plant shuts down, electric steel producers with excess capacity will ramp up production to meet nearly all long steel demand, outside of the low volumes of specialised automobile supplies.

But these specialised products are made in volumes too small to warrant ArcelorMittal Newcastle operation staying open.

While the government aims desperately to save jobs in Newcastle, it is worth noting that if ArcelorMittal doesn’t close its Newcastle factory, another steel producer will close, due to the steel oversupply in both the local and global markets. In fact, there is double the steel capacity in SA than demand, with a sluggish economy exacerbating the situation.

Put another way, rationalisation of the steel industry cannot be avoided. If the government tries to save the ArcelorMittal Newcastle plant with a R1bn investment, even after the R1 billion funding from the Industrial Development Corporation (IDC) in 2024 was insufficient, another producer will close. It raises the question, should the government be choosing which companies to save in an oversupplied sector and which to allow to shutter? Surely risking more public money in this sector is not in the public’s interest?

There are some potential solutions to the imminent closures besides a massive and damaging government bailout. ArcelorMittal also owns a steel plant in Vereeniging that uses scrap steel as a raw material to produce specialised steel required by the automotive sector. It should be kept open. If ArcelorMittal won’t run it, then they should give it to someone else who will. Cape Gate has already indicated our interest, as have others. Alternatively, ArcelorMittal could produce 12 months of supply of these specialised plants before shutting down in order to give the automobile manufacturing industry time to certify new suppliers.

Additionally, ArcelorMittal remains the biggest producer of flat steel products with a market in excess of 1.5 million tonnes a year and with the government tariffs already protecting this sector they will be a significant contributor to the local economy for some time to come.

But ArcelorMittal’s Newcastle long steel plant can’t be saved at all costs and has been unprofitable for most of the preceding decade.

One area of ongoing debate is the price preferential system (PPS) and scrap tax, which prioritises the sale of scrap metal to local steel manufacturers and taxes any excess that is exported. This has been heavily criticised by ArcelorMittal and some analysts, such as Donald Mackay. This policy, however, supports South African industrialisation by ensuring that valuable resources remain in the country for beneficiation by the so-called mini mills.

Calls to end the scrap tax to save ArcelorMittal would do nothing to fix its deep structural problems but would destabilise the mini-mills that can produce enough steel to supply the almost entire South African market.

What would be helpful is a change in steel policy, which considers the needs of all steel manufacturers and aligns with global trends. Short-term fixes such as bailouts and sudden political support to address the Newcastle job losses are insufficient. Instead, a comprehensive and demand-oriented approach by the government that takes into account the oversupply of steel globally and locally is required.

At Cape Gate, we are committed to contributing to discussions with the government and advocating for policies that support the industry’s long-term sustainability.

The Newcastle potential plant’s closure is a wake-up call for South Africa’s steel industry, but it is not a death knell, as the electric steel industry can still thrive. The potential job losses and placing of the plant into care and maintenance are opportunities to work together to build a more resilient and future-focused industry that benefits workers, communities and the broader export and local economy.

Oren Kaplan is the chairman of Cape Gate.

BUSINESS REPORT