Business Profiles

ArcelorMittal South Africa – Here to Stay

ArcelorMittal is a name which needs no introduction. With operations across 60 countries and annual gross revenues estimated to be in excess of US$70 billion, the company is by far the largest producer of steel in the world today. It should therefore come as little surprise that ArcelorMittal South Africa (AMSA), as a subsidiary of this global giant, is the country’s and indeed the African continent’s largest producer. What is surprising, however, at least to the industry outsider, is that this regional behemoth has found itself in unfamiliar and uncomfortable territory.

In spite of the immense resources it can call upon and its undisputed standing as the regional market leader, AMSA has faced its fair share of challenges in recent years, not least among them the dilemma of how to compete with the flood of cut-price Chinese steel that has threatened to pull the rug from under domestic producers. Endeavour Magazine caught up with AMSA to find out more.

It is telling that even those who know nothing of the steel industry recognise the ArcelorMittal brand, such is its reputation as one of the leading names in global business. This reputation is, of course, well justified: the company is the world’s largest steel producer by a considerable margin, with a production capacity of over 90 million tons per annum – more than twice that of its closest competitor.

As one of the company’s national subsidiaries, it is perhaps only natural that AMSA has long been the market leader, not only in South Africa but across the African continent. Headquartered in Vanderbijlpark in Gauteng province, AMSA is South Africa-based, but, in-line with its African Overland Strategy, its presence and reach is truly pan-African. As Wim de Klerk, AMSA’s CEO, explained: “Our African Overland Strategy (AOL) is to ensure our presence is felt in the continent. We will aggressively pursue the AOL market and secure more than 30% markets shares, having identified potential strategic customers who will serve as distribution points to mitigate the current logistical difficulties of trade in the AOL. We are working with various stakeholders, including Proudly SA and Brand SA, to ensure that we position to company better in the country, continent and the world.”

Across the company’s four major production facilities in Vanderbijlpark and Vereeniging in Gauteng, the recently-relined Newcastle blast furnace in KwaZulu-Natal, and Saldanha in the Western Cape, AMSA has the capacity to produce 5.2 million tons of steel slab, plate, cold and hot rolled coil (HRC), galvanised steel, tinplate, billet rebar, and a portfolio of bars, rods, and other saleable steel products. Currently, the company supplies 60% of the steel used in South Africa, the majority of which is used for the manufacture of products, equipment, and machinery for heavy engineering, construction, mining, automotive, and other heavy industries.

Furthermore, to ensure the long-term efficiency of its world-class facilities, AMSA has recently embarked on an investment drive to maintain their effectiveness. “The year 2015 marked the completion of the Newcastle Blast Furnace relining – an investment to the tune of R1. 8 billion that is expected to sustain the production for over 20 years. With the completion of the relining, production increased and moved towards steady production. Around 1.5mt of steel was produced – an increase of 150% from 2014, and equivalent to 24% of South Africa’s production – up from 9% in 2014.

This production provided R7 billion of beneficiation, which is aligned to a key area of South African Government. Additionally, Newcastle’s steel supports the industrial growth initiative of the province through contribution to the construction and manufacturing industries.”

Such statistics speak for themselves. AMSA is a critically important component of the South African economy, and a key supporter of the country’s National Development Goals – a strategy created to increase GDP growth to 5.4% per annum and reduce unemployment. It is therefore as much to the detriment of South Africa and its people as it is to AMSA itself that the company has faced difficulty in recent years, primarily as a result of falling global demand for steel and, of course, the emergence of China is an industrial superpower.

As the largest and most advanced economy in the sub-Saharan African region by a considerable margin, the impact of China’s rise has posed a number of challenges to South Africa, not least to its steel industry. With a crude steel production capacity in excess of 800 million metric tons – all but half of the world’s total production, and easily more than that of the rest of the world’s top-20 producers combined – Chinese production has increased to such an extent that in recent years, a global steel glut has threatened to strangle the domestic steel industries of many countries around the world. How could it not when, as recently as the end of 2015, a ton of Chinese steel was cheaper than a ton of cabbages – an absurd but undisputed fact.

This burden of cheap imports was amplified by the weakened state of the global economy, to the extent that industry insiders and members of government began to speak of the demise of a South African steel industry, which was in terminal decline. Fortunately, this was a prediction which proved to be somewhat premature. To paraphrase the country’s Trade & Industry Minister, Dr. Rob Davies, the South African steel industry ‘has not surrendered,’ and nor has AMSA. With the support of the South African government, whom AMSA lobbied in collaboration with the SAISC, a raft of protectionary tariffs and bans on the import of steel products into the country have come into effect. Designed to protect domestic primary and downstream steel producers, these safeguards have come as a great relief to Wim:

“The 10% bound rate that we received from the government was very important. That gave us a little bit of reprieve to say that we have the ability to counter imports a bit and to deliver to the local market – that was important. The designation issue which, basically, government is allowing certain steel that is used in South Africa, will only be used if it made in South Africa.

I think that is very important, not only for us (AMSA) but also for the downstream industry.”

From a logical standpoint, this ‘buy South African’ policy is one which will benefit every corner of the embattled industry, but support for such protectionist measures have been met with fierce opposition from some quarters. It is well-known that while South Africa has not been in recession for some time now, the national economy has struggled to return to the surging year-on-year growth that occurred up until the Great Recession of 2009. Growth opportunities in the country remain limited, particularly within its heavy industries. This, coupled with industry politics which has led to disagreements between AMSA and some downstream companies in the past, has led to demands to have tariffs repealed – a stance that Wim can understand and empathise with, even if he doesn’t agree with it: “Some of our customers that we sell to today will the take the route of imports, therefore publicly protesting about what we do. We can’t blame them … we shouldn’t blame them. We should talk about what we can change to bring them with us on this journey.

Generally, some steel products are cheaper from China. If I ran my own company, if I ran Wim de Clerk Pty Ltd, and I found the products cheaper for me my people and my shareholders… I understand their point. They don’t care about the politics of whether they are made in South Africa or not – they can get it cheaper and they import it. This made if difficult for them to be told by government that they have to pay a premium for their product, just to support another South African company.”

For an industry which is seeking to steady the ship in the face of the dual threats posed by a stagnant economy and the glut of Chinese steel, it is essential that the wider industry is on-board. Tough times lie ahead, after all, but a buoyant domestic steel industry is both essential for the economic well-being of South Africa, and a source of national pride. As a message to the world that ArcelorMittal is here to stay, its 9,000-strong workforce, and the 100,000 South Africans who are indirectly employed as a result of its business operations, AMSA has announced plans for R4.5 billion of capital expenditure over the coming years, to signal its commitment to South Africa.

As part of contributing to the country’s economy, this year we will launch the Industrial Incubation Hub between in Vanderbijlpark under the Sedibeng District Municipality in Gauteng. With an initial capital investment of R30-million over three years, the Incubation Hub will provide a comprehensive technical and commercial development support of 12 incubates during a period of two years from a comprehensive two-year development programme which encompasses technical, commercial and industry specific training from 2017. The will specialize in the development of emerging black owned enterprises with a specific focus on the manufacturing, fabrication and reconditioning industry,” Wim stated. He continued:

As part of this technical incubation programme, incubates will have exclusive access to separate workshops, a central 800m2 inter-leading central workshop area where incubates will have access to larger, more expensive fabrication and manufacturing equipment.”

Another initiative which AMSA is soon to embark upon is ‘Walk in My Shoes’ – a scheme designed to foster a mentorship culture, improve comradery, and promote a greater understanding of roles between the company’s staff. Investing in its people in this way makes sense, in that it is both good for business and good for staff happiness. Wim concluded the interview on this point, saying:

“This initiative will help to understand our business, each other and the challenges we continue to face on a day-to-day basis.  Each month, every EXCO member will be allocated an ‘intern’, with whom they will spend one day, allowing them to walk in their shoes, mentoring them on the intricacies of their roles as ArcelorMittal South Africa’s leaders. In return, each EXCO member will also spend a day in the life of the ‘intern’, to reciprocate the learning. In this way each will better understand and appreciate the other’s life, challenges, fears, and aspirations.

We should talk to our people, we should listen to our people and then afford them an opportunity to influence us because we don’t have all the answers. We are a learning organisation and we will make mistakes in the process and when I have 10 000 people directing me and all my external stakeholders, we are also learning as we take the company to the highest trajectory.”