ArcelorMittal Unit Plunges as it Reviews Biggest Africa Mill

1 September 2015

ArcelorMittal South Africa Ltd. fell to its lowest level since 2002 in Johannesburg trading after the company said it will review the viability of Africa’s biggest steel mill and a cabinet minister criticized its pricing policy and maintenance programs.

The company said in a statement on Monday that it will complete a study of the loss-making 3 million metric ton-Vanderbijlpark steel mill, south of Johannesburg, by the end of October and will also probably close parts of its nearby Vereeniging plant, cutting 400 jobs.

ArcelorMittal took control of the formerly state-controlled company in 2003 and used a policy of charging customers the equivalent of what they would pay to import steel, against government objections because it had also been given a discount on iron-ore prices. Now Chinese imports into South Africa are below the company’s cost of production and it is seeking import tariffs in addition to a 10 percent levy imposed by the government on some steel products this month.

“The sustainability of the local steel industry and the prevention of job losses remains ArcelorMittal South Africa’s primary concern,” the Vanderbijlpark-based company said in the statement.

The stock fell 15 percent to 9.96 rand at the close, the lowest since Jan. 30, 2002. The company’s Luxembourg-based parent is the world’s largest steelmaker.

“A lack of maintenance, capital equipment and upgrades to aging plants contributed to seven catastrophic plant breakdowns at various of its plants across the country,” Rob Davies, South Africa’s trade and industry minister, said in an opinion piece in Johannesburg’s Business Report newspaper on Monday.

“Working together in a collaborative, mutually beneficial relationship will always bring better, and even optimal, results and marry the needs and economic realities of the private sector with the country’s needs,” he said.

The company is in talks with the government on capping steel prices should it receive protection from imports, Chief Executive Officer Paul O’Flaherty said on July 31. ArcelorMittal South Africa will comment on Davies’s remarks later today, Rio Matlhaku, a spokesman for the company at Aprio Strategic Communication, said by e-mail.

Competitors, including Evraz Plc’s local unit and Scaw Metal Group, have previously announced plans to cut more than 2,000 jobs.