The fragile West Coast economy will begin 2020 on a brittle footing with steel giant Arcellor Mital’s decision to close down its unviable Saldanha Steel plant.
The R6,8bn Saldanha Steel facility, located around 10 km away from the Langebaan Lagoon, was commissioned in 1998 with a capacity to produce 1.25 million tons of hot-rolled carbon steel coil per year. The product is earmarked mainly for the export market, and was the first steel production facility to merge the ‘Corex’ and ‘Midrex’ technologies that replace the need for blast furnaces and coke ovens.
The first signs of bad news for Saldanha Steel came in September when ArcMitt declared a “strategic asset footprint review of its South African operations with a view to determining “the operational and financial sustainability of certain of its major operating sites”.
By mid-November ArcMitt had concluded the first phase of the review, and the news was not good for the Western Cape economy.
To quote the steel giant: “Following due deliberation and consideration, the decision has been made to undertake an orderly and commercial wind-down of steel operations at Saldanha Works, ultimately placing the operation on care and maintenance.”
ArcMitt noted Saldanha had lost its structural competitive cost advantage to effectively compete in the export market – mainly due to raw material and regulated prices. The facility – which turned over R8.7 billion in the 2018 financial year when almost 1.1million tons of steel was produced – was suffering severe financial losses and these were forecast to continue for the foreseeable future.
ArcMitt immediately went about the process of winding down Saldanha’s steel operations to a state of care and maintenance. This process, the group said, would probably be completed during the first quarter of 2020.
Almost 1 000 workers will affected by developments, which would be devastating in an area where there are relatively few large scale employers.
The contractual domestic steel sales orders from Saldanha will now be fulfilled from ArcMitt’s Vanderbijlpark Works.
ArcMitt pointed out that the “difficult decision” on Saldanha was taken in the context of constructive ongoing engagements with key stakeholders – including government and organised labour – to find alternative solutions to the dire situation in the South African steel industry.
ArcMitt stressed that it realised the importance of Saldanha to the region, and would, as far as reasonably possible, make every effort to minimise the impact of the orderly and commercial wind-down.
Since the decision to close down the Saldanha Steel plant, there have been protests by local workers and support from government urging ArcMitt to re-consider their decision.
Government itself is probably too cash strapped to deal comprehensively with a Saldanha Steel rescue package. Besides parastatal problems like Eskom and South African Airways have priority.
The only possible solution, at this delicate juncture, is finding an investor willing to take the Saldanha Works off ArcMitt. That seems highly unlikely – especially with Chinese competition rendering Saldanha Steel’s participation in depressed export markets increasingly unviable.
CBN understands that provincial and local government did their level best to ensure the Saldanha plant endured – including exploring ways to reduce electricity charges and water tariffs.
ArcMitt, itself, also worked hard at finding traction at Saldanha.
These efforts might well be critical should trading conditions in the steel industry firm up, and the Saldanha plant find itself the target of opportunistic investors.
According to the group’s 2018 annual report, strenuous efforts were undertaken to ease the plant’s “chief bottleneck” in its inability to produce sufficient quantities of liquid iron (which required the introduction of scrap, and dramatically slowed the Conarc furnace process).
ArcMitt indicated that the business transformation programme set a debottlenecking-improvement target for Saldanha at a sustainable R277 million per annum.
The group said that by financial year-end some 45% of this target had been achieved in terms of improved yields and reduced electricity consumption.
ArcMitt also took maintenance at the Saldanha plant very seriously – which probably means the operating assets are still in good nick.
The 2018 annual report noted the Saldanha plant would serve as the company-wide test bed for transforming the group’s maintenance practices, investments and processes.
In this regard, maintenance improvements introduced in 2018 concentrated on Saldanha’s hot strip mill – where ArcMitt said “the results were almost immediate and substantial (with) stoppages…being cut with minimal capital expenditure”.
While Saldanha Steel’s closure is a bleak development for the West Coast economy, if the plant can be continue to be adequately maintained then the chances of a new backer emerging in better times are at least reasonable.
