In a recent interview with Railways Africa Magazine, Gaurav Nagpal, the Chief Marketing Officer of ArcelorMittal South Africa, provided insights into the company’s current state, the opportunities and challenges it faces and its plans for the future. The conversation focused on the Long Steel business and particularly the efforts in safeguarding local production of Railway products that are critical for the successful implementation of African Railway infrastructure under AfCFTA principles.
The Long Steel business has faced significant challenges due to local demand issues, issues around scrap subsidy and various operational hurdles posed by Eskom and Transnet. These challenges hindered the company’s ability to compete locally and internationally. “In November 2023, we announced the wind-down of our Long Steel business due to these pressures,” Nagpal recounted. However, by February, when the annual results for 2023 were announced, management gave themselves six months to reassess and identify potential solutions.
With extensive engagement at various levels—local communities, government, and international stakeholders—short, medium, and long-term initiatives were identified. Encouragingly, progress was made, leading to the decision to continue operations.
A few of the key issues and short-term initiatives, as highlighted in the recent business update;
- Scrap Advantage Over Iron Ore: The export ban on steel scrap was not extended in December 2023, starting a process to bring greater fairness and equity into the input cost structures between integrated and scrap-based primary steel producers.
- Port and Rail Efficiency: Transnet’s performance to ArcelorMittal South Africa has improved. Negotiations with Transnet to guarantee port and rail service efficiency have progressed well and are at an advanced stage.
- Trade Normalisation: With oversupply in global steel markets, many countries have taken trade actions. South Africa is responding to ensure a level playing field for its manufacturers, with a provisional safeguard duty of 9% on certain hot rolled steel products by the International Trade Administration Commission (ITAC). Applications for appropriate action on other steel products, including long products, are also being pursued.
“We were pleased to report that we made significant progress, and in the long term, things started to look viable. Therefore, when we released our business update, we announced our decision to continue with the Long Steel business in South Africa for now” Nagpal noted, emphasising the importance of local steel manufacturing for the economy. “The industry bodies conducted various studies on the impact of their operations on the industrial sector, jobs in the value chain, and the overall economy, which highlighted why local steel manufacturing is so crucial for the country.”
Nagpal highlighted the cooperation with long-term customers and the support for a local supply solution, although these initiatives are medium to long-term. He also underscored the historical significance of ArcelorMittal South Africa, whose steel has been integral to iconic projects both locally and internationally, such as the Nelson Mandela Bridge, the Msikaba Bridge and into maintenance of the likes of Sydney Harbour Bridge & London Bridge. “South African steel is even used in fences around the Egyptian pyramids and in oil and gas pipelines in the US. We have a long history of producing quality products, demonstrating leadership in product development, and meeting market requirements. We are also part of the ArcelorMittal Group, a global leader in steel production. We are present on all continents except Australia and Antarctica, supplying and selling steel to 140 countries around the world. We are very proud to achieve this milestone and continue our supply,” said Nagpal.
The Rail Sector
South Africa has a long history of producing its own rail, initially out of Pretoria and later from the old Evraz Highveld Steel and Vanadium (“Highveld”), which was established in the ’70s to beneficiate vanadium by the Anglo-American Group. Highveld went into business rescue around 2015. In response, ArcelorMittal South Africa worked with the Department of Trade, Industry and Competition (the DTIC) to initiate the safeguarding of the structural mill portion of the overall asset through a contract manufacturing agreement in 2017. This agreement allowed for the then joint-operation named Highveld Structural Mill, the continued production of mainline rail and universal structural sections, localising almost 80,000 tons of structural sections previously imported, equating to approximately R1.2 billion worth of steel.
In 2022, ArcelorMittal South Africa finalised the acquisition of Highveld Structural Mill as a 100% owned subsidiary, introduced in the market as ArcelorMittal Rail and Structures (“AMRAS”). Since then, the company has increased its overall rail sales within the country and region. AMRAS supplies mainline rails to numerous new customers and is in contact with various regional rail projects. Together with its Newcastle operation, the company produces a whole set of mining, siding and mainline railway products, including crane and underground mining rails, mainline rail, railway steel sleepers, rail clips, structural steel for overhead lines, input material for fasteners, and fencing material for rail networks.
He continued, “We finalised the acquisition of Highveld as a 100% ArcelorMittal company in 2022. Since then, we have increased our rail sales within the country and the region.. We are in contact with various regional rail projects, which are interested in local rail solutions for the development of their network under the African Continental Free Trade Area (AfCFTA). Our product range has expanded to include not just rail profiles but also mines and sidings, crane rails, mainline rail and railway steel sleepers.”
“We also produce steel input material for rail clips within the country, structural steel for overhead lines around rail infrastructure, and Steel material for fencing applications developed by us and rolled at one of our operations. We even produce the input material for fasteners used to secure rail lines, all with our steel within the country. This comprehensive approach to track infrastructure underscores the importance of our Long Steel operations as a source of quality steel input.”
“In addition, our Vanderbijlpark and Newcastle steel products have been extensively used in South Africa in the manufacturing of passenger and freight rolling stock, including locomotives, wagons and car coaches, that transport million tonnes of material and goods and people. The only thing missing in South Africa is cast wheels.”
So, where does all this take us? Let’s talk about demand and supply. “South Africa is one of the more industrialised economies within sub-Saharan Africa. We have successfully established an auto manufacturing hub in South Africa and other countries in sub-Saharan Africa are looking to emulate this. We’re in the top 20 to 25 auto production countries in the world. Similarly, within the continent, there are about 100,000 kilometres of track, with 25,000 kilometres within South Africa alone. There are over 15 rail corridors developing between East Africa, West Africa, Central Africa and Southern Africa to enable the movement of people and goods…Within the African Continental Free Trade Area (AfCFTA), we must envision better movement of people and goods. All that ambition is there, creating a unique opportunity to position South Africa as a rail hub. This is the opportunity we have in front of us, which requires policy enablement and government partnership. This presents the opportunity to establish an African rail hub or a global rail hub, supplying everything from track to fencing. That’s the possibility we are aiming for,” states Nagpal.
ArcelorMittal South Africa is looking to grow from strength to strength. Recent announcements by the South African President, the Trade and Industry Minister, and the Deputy Minister emphasise local mineral beneficiation and growing the economy through localising manufacturing and supporting industrialisation. Improved performance from Eskom and Transnet supports this vision. “We are definitely on the brink of a turnaround. Our turnover as ArcelorMittal South Africa is 40-45 billion rand, a significant percentage of South African GDP. The steel multiplier is about 3 to 5 times in developed countries and about 7 to 9 times in emerging countries on jobs and economic impact. We are very proud to play our part in rebuilding South Africa,” Nagpal said.
Trade Protectionism
Addressing criticisms about trade protectionism, Nagpal clarified that the measures in place are not about protectionism but about levelling the playing field. “There are clear definitions of various trade distortions, and these can be remedied through interventions like safeguards,” he explained. These measures, he asserted, are vital to protect local industries from unfair competition due to surges in imports.
“For context, we’ve had exceptional trade liberalisation around the world over the last 20 to 30 years. That cycle is now swinging back. The pendulum has swung too far and is now correcting itself. We see this with the US and Europe applying 25 to 50% tariff barriers against subsidised trade from China or other emerging countries that have invested heavily in their capacity to support their growth. Over 20 years, China increased its steel production from 100 million tons to a billion tons to support its growth with massive government support. Now that demand has fallen heavily in its domestic economy with the weakened property market, China is seeking to export huge quantities of steel production – which could be up to 100 to 150 million tonnes. It’s easy to see how this disrupts global trade extensively and hurts local manufacturing and production, hence the need for tariff barriers. This trend will likely continue over the next three to five years. Putting safeguards in place is like building a fence around your perimeter to deal with the current situation. If we do not address our trade imbalances, it will flow towards us because other countries have raised their barriers, leaving us highly exposed.”
“South Africa is not a major steel-consuming country on its own, but Sub-Saharan Africa consumes approximately 25 million tons annually. A large portion of this demand is met by overseas imports, but we as South Africa have the opportunity to supply it under the AfCTA. Becoming more regional and local is important and a moral imperative for our economies to provide jobs, growth and local industrialisation. The promise of Africa will come alive over the next 10 years if we have the right instruments and are not bogged down by dumping and other trade distortions from other countries, affecting practically all our manufactured goods.”
The latest business update from ArcelorMittal South Africa noted that China’s domestic steel consumption is expected to remain weak in 2024 due to the ongoing property crisis and weaker infrastructure demand. The high levels of steel exports from China seen in 2023 continue to pressure international steel markets. At 94 million tonnes in 2023, China’s steel exports were at their highest level since 2015/16. China’s steel exports for the first five months of 2024 increased by 15% compared to the same period in 2023, and in 2024 exports are anticipated to exceed 100 million tonnes.
Within this environment, most steel-producing countries and regions have moved swiftly to implement trade remedies and non-tariff barriers. Mexico announced a near-80% tariff on imports from China. Brazil imposed a 25% tariff, matching the tariff imposed by the USA on China. These countries followed the lead of Europe, while India, Vietnam, Thailand, and others are also taking similar action. Japan and South Korea are considering their options as are other countries. The UK applies quotas and has separately maintained anti-dumping and anti-subsidy duties on specific categories of steel products imported from China.
Nagpal discussed the Steel and Metal Fabrication Master Plan, developed to create common ground between industry, customers, labour, and suppliers. While progress has been slow, the plan has laid the groundwork for significant future improvements. “It lays fertile ground for focus over the next three to five years,” Nagpal remarked, expressing optimism about the plan’s potential.
Despite the overall weak market and difficult trading conditions, there have been positive signs in the manufacturing sector. Manufacturing production increased by 5.3% year-on-year in April and by 5.2% month-on-month compared with March, marking the largest monthly increase since August 2021. The absence of load-shedding and the expected increase in power generation from renewable energy projects suggest a gradual improvement in production levels.
The regional market served by the company has one of the lowest steel consumption per capita rates in the world, providing a unique growth opportunity. The AfCFTA will facilitate easier trade within East and West Africa, reducing import duties and enabling preferential access for South African goods. The company is well-positioned to fully participate in this important trade initiative.
The Longs steel product operations remained stable in H1 2024, despite uncertainties about the business’s future. Major activities are already underway for H2 2024 for flat steel operations after technical difficulties in H1 2024, to re-normalise the supply chain after the HI operational interruptions.
Despite hurdles, ArcelorMittal South Africa remains committed to playing a crucial role in the local economy, with ambitious plans to revitalise its operations and contribute to the industrialisation of South Africa. With its rich history and a clear vision for the future, the company is poised to continue its legacy of excellence in steel production.
For any further information please view the ArcelorMittal South Africa website here
