Kobus Verster, CEO of ArcelorMittal South Africa (Amsa), is displaying a newfound optimism these days.
Just last month he was preparing to shut down Amsa’s loss-making long-steel plants in Vereeniging and Newcastle by early April, at a cost of 3,500 direct job losses and possibly thousands more in the engineering industry.
Verster had been warning since November 2023 that Amsa would shut down its decades-old steel mills in Gauteng and KwaZulu-Natal, but closure was deferred several times on vague promises of help from the government. Now the death sentence has been delayed again, at least for another six months, thanks to the Industrial Development Corp (IDC).
The state-owned development financier owns 8.2% of Amsa. It provided Amsa with a R380m loan in early February and a further R1.68bn loan that landed in its bank account on the afternoon of March 31.
Verster even talks about the plants being operational in the long term. It is a big U-turn, made possible initially by the IDC but also informed by an apparent shift in attitude by the government and Amsa shareholders.
“First, there is now financial support for the long-steel business,” says Verster. “We have made it clear that we are not prepared to run the business and incur more financial losses that ruin Amsa.”
The long-steel business’s customers include important industries such as construction, automotive and manufacturing. This steel is essential, for instance, in building bridges and roads (reinforcement bars, structural beams, columns and steel frames) and constructing railways and power transmission lines.
Verster continues: “Second, there is a bit more hope and trust that policy changes will soon be implemented by the government to benefit the steel industry. There is a different realisation that Amsa’s long-steel business benefits South Africa and its economy.”
However, the IDC loans will enable Amsa to continue operating the long-steel plants only until August 31, while the government searches for ways to keep them open.
There is still a sense that Amsa is merely kicking the can down the road and delaying the inevitable closures of steel mills, but Verster challenges this. He argues that it is a matter of weeks before the government — in this case, the department of trade, industry & competition (DTIC) under minister Parks Tau — will implement policies to benefit Amsa and the broader local steel industry.
Verster has long taken aim at “unfair” tariff policies and the preferential pricing system (PPS) for scrap, designed to ensure that domestic industries have access to more affordable scrap metal.
South Africa has faced an influx of cheap steel imports from China. Amsa’s ageing plants in Vereeniging and Newcastle consume heavy raw materials such as iron ore and face higher input costs in producing steel. Of the 4.1Mt of steel bought locally in 2024, a third was imported, largely from China. To protect the local industry and reduce imports, Verster wants higher tariffs on imports.
The International Trade Administration Commission of South Africa, a mandated pro-economic growth and development agency overseen by Tau’s department, is reviewing South Africa’s steel tariff structure. It is considering imposing a 13% safeguard tariff on hot-rolled coil and plate imports in 2025. Tariffs might then fall to 11% in the second year and 9% in the third.
“The 13% tariff just needs to be gazetted by the government. So, it’s an administrative process. It’s easy to implement and a low-hanging fruit,” says Verster.
The government has also initiated a far-reaching review of the steel tariff structure for products upstream (sourcing and processing of raw materials) and downstream (transforming steel into finished products and delivering them to end users).
US President Donald Trump’s global tariff campaign has to be one of Amsa’s risk factors. For now, the company is apparently not affected by the blanket tariff increase of up to 30% on products manufactured in this country. Some Amsa steel and aluminium products are indirectly supplied to the US automotive industry. Verster says “it is still early days” and the company is still assessing the Trump tariff regime.
A more complex matter is the government’s policy on scrap metal, introduced during the term of Tau’s predecessor, Ebrahim Patel. This involves the PPS, as well as a 20% export duty to encourage local use, and a ban on scrap exports.
These measures, says Verster, have provided smaller steel producers that have electric arc furnaces with an “artificial” competitive advantage over manufacturers that rely on iron ore.
On export tariffs and scrap metal policy, Tau’s spokesperson, Yamkela Fanisi, says the DTIC has “ongoing engagement on the matters” and “at an appropriate time we will give feedback”. In other words, there has not been confirmation from the government on policy reform.
But Verster says his relationship with Tau is good and he believes he will make good on policy relief promises. “I think he’s accessible. He listens and puts in an effort. So, that’s a definite positive.”
The story of Amsa is complex and crucial to South Africa’s history, economic ambitions and industrialisation efforts.
The company now known as ArcelorMittal South Africa was established in the 1920s as the state-owned Iron & Steel Corp, Iscor. It grew significantly during World War 2, driven by wartime needs, and continued to expand post-war. By the 1970s, Iscor had become the dominant player in the steel industry, supported by economic policies aimed at modernising and industrialising the economy.
Iscor was privatised in 1989 and acquired in 2004 by a company linked to global steel baron Lakshmi Mittal. Since then, South Africa’s steel production has faced significant challenges, with overall output declining over the past decade from about 6.4Mt to 4.7Mt. This is attributed to a combination of factors, including weak domestic demand because of low economic growth, a surge in steel imports, frequent power outages and a rapid decline in rail efficiency.
Amsa’s share price on the JSE has reflected the broader financial challenges in the industry. It has dropped by more than 80% since the acquisition by Mittal and the long-steel business has seen R1.7bn in cumulative losses since 2023.
Verster has also blamed the decline on mini-mills, which he says have continued to receive unfair government support since 2013, with the introduction of the PPS creating an uncompetitive environment. Mini-mills use scrap metal, which is cheaper, while Amsa relies on more expensive iron ore and faces other input costs in the manufacturing of steel.
The criticism of mini-mills is arguably awkward for the IDC, as one of Amsa’s shareholders. The IDC has invested more than R1bn in five mini-mills, which raises questions about possible conflicts in the development financier’s investment strategy.
Mark Goliath, the IDC’s acting divisional executive for manufacturing, textiles and wood products, sees merit in being simultaneously exposed to mini-mills, which he says employ 8,200 people and produce environmentally friendly steel from recycled metal, and to Amsa.
“The rationale for our support of mini-mills was a result of a policy imperative to increase competition in the primary steel industry, and to improve access to the market by SMMEs and black industrialists, as well as to help reduce steel prices,” says Goliath.
“As global technology moves towards smaller electric arc furnace mills, our support for smaller companies has enabled more efficient production of steel for various downstream industries in the local market.”
Paradoxically, perhaps, the IDC’s exposure to Amsa might increase. While its R1.68bn loan does not come with an equity conversion obligation, it is considering taking a larger stake. Asked if the IDC is prepared to take a majority position, Goliath says it cannot “pre-empt” its next steps. “The outcome of a due diligence will inform us on the nature and extent to which we can support this business.”
Amsa has fallen victim to problems that have plagued many industries in South Africa, mainly severe rolling blackouts and the failures of Transnet’s rail network. Amsa has had to transport raw materials to its factories by road, which is much more expensive. It relies heavily on Transnet to move 91% of the iron ore and 100% of the coking coal consumed at its Newcastle and Vanderbijlpark factories.
While Transnet is embracing private sector rail operators to improve efficiencies, Verster, understandably, is not optimistic that these efforts will deliver progress soon.
Moshe Motlohi, CEO of the Transnet Rail Infrastructure Manager, says rail reforms will not be delivered overnight, because Transnet’s rail network has been dysfunctional and underperforming for years. “Improvements will be gradual. The state of the network is not the best, requiring extensive maintenance and repairs. However, there is urgency and an understanding of how Transnet is holding the economy back,” he tells the FM.
At the end of February 2025, Motlohi’s office closed the application process for private operators to bring in locomotives and heavy-haul wagons to operate rail lines independently. Motlohi says his office has received 98 applications. Successful applicants are set to be announced by the third quarter of 2025, and private sector operators are expected on the tracks as early as October.
Though South Africa’s rolling blackout crisis has largely faded, providing steel producers with breathing room to improve operational efficiencies, the adverse impact of Eskom’s exorbitant electricity tariffs persists. Verster says the increase for 2025 of nearly 13%, effective on April 1, will exacerbate Amsa’s financial difficulties. Amsa’s application to Eskom for a lower tariff was unsuccessful, and it plans to reapply to the National Energy Regulator of South Africa.
While Amsa has garnered sympathy for its financial and operational challenges, the company also has its critics. One market watcher tells the FM that Amsa has failed to innovate quickly enough, as it still relies heavily on traditional blast furnace technology, which is less efficient and more costly.
Amsa has also been criticised for its inability to adapt to market changes, mainly declining demand for long-steel products and increased competition from cheaper imports.
“After all, this is a company that found itself on the wrong side of competition laws and is now asking for special treatment,” says one observer.
In 2016, the Competition Commission fined Amsa R1.5bn for anticompetitive behaviour — the single biggest penalty yet levied on a company by the competition watchdog. Amsa admitted to participating in cartels related to the long-steel and scrap metal markets.
Verster pushes back against suggestions of Amsa wanting special treatment. “We want to be treated fairly. That is not asking for special treatment,” he retorts.
Defenders of Amsa say the closure of its long-steel business will exacerbate South Africa’s socioeconomic crisis and its steady deindustrialisation, which has deteriorated over the past 15 years.
A recent report by Econometrix says the local steel industry has shed 25,000 jobs since 2009. The steel industry’s contribution to the economy decreased from 0.8% of GDP in 2010 to 0.3% by 2023. Steel production halved from 9.7Mt in 2006 to 4.7Mt in 2024.
Economic growth has averaged less than 1% over the past 10 years in South Africa, says Azar Jammine, chief economist at Econometrix. “These numbers clearly illustrate the source of Amsa’s problems. It’s a function of the decline of capital investment and poor policy decisions in the country.”
Despite these challenges, Verster says the holding company wants to remain invested in the business in South Africa and believes it can return to profitability. “ArcelorMittal Group [the majority shareholder in Amsa with a 68% stake] has always been committed to South Africa and Africa as growth markets. The long-steel business can be profitable if structural and policy issues are addressed by the government.”
In the interim, a big focus for Amsa will be reducing operational costs and freeing up cash by selling noncore assets, mainly properties the company owns. Amsa CFO Gavin Griffiths says annual cost savings of at least R1bn are targeted, which would require, among other initiatives, reducing production costs by $100 for every ton of flat steel produced without compromising quality, and cutting energy consumption at plants.
Amsa plans to reduce its reliance on Eskom by making investments in renewable energy sources, as part of its 2030 decarbonisation plan. This entails the company building a 200MW renewable energy facility at its Vanderbijlpark plant. It aims to convert one of its three blast furnaces at Vanderbijlpark into an electric arc furnace, which produces fewer emissions, within the next four years.
Structural market challenges are not unique to Amsa. There is global overcapacity of steel, with excess production, particularly from China, flooding international markets with cheap steel. Demand around the world remains weak as many countries are facing economic stagnation. Supply chain disruptions stemming from the pandemic, with labour shortages and logistical bottlenecks, continue to affect steel production and delivery. Rising energy costs are another sore point for steel manufacturers.
The government faces a delicate balancing act and must move quickly. On the one hand, the country would like to retain a long-steel capacity — once lost, it would be very difficult to restore. In an uncertain world, future imports are not guaranteed to always be relatively cheap and readily available.
On the other hand, protection for Amsa will probably entail higher costs for users of steel, which could threaten downstream jobs and deter investment.
The government’s response will decide whether South Africa’s century-old steel industry leader will succumb to creeping rust, or produce green shoots of rescue and regeneration.
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