With ArcelorMittal’s operations in South Africa running into losses, Steel magnate Lakshmi Mittal has sought South African government’s intervention to counter cheap Chinese imports and asked for an imposition of a 10 per cent import duty on steel, according to a media report.
The weekly Sunday Times reported that Lakshmi Mittal was in the country last month to brief the government, including President Jacob Zuma, on a possible rescue assistance, failing which his company ArcelorMittal South Africa may be forced to reconsider its options in the country.
ArcelorMittal South Africa was formed in 2004 after Lakshmi Mittal came to the rescue of the ailing state steel producer Iscor to turn it around. It was eventually sold to him.
The South African government had done this in the hope that steel prices in the country would come down but the current crisis sparked largely by cheap metal exported by China is threatening plant closures by ArcelorMittal South Africa in at least two South African towns where the entire economy is dependent on the steel industry.
The biggest plant is at Vanderbijlpark, employing 4,500 people and accounting for almost half of the company’s sales, is also the biggest contributor to ArcelorMittal South Africa’s losses.
“Rome is burning, every single day the industry loses millions and it’s really, really concerning,” Paul O’Flaherty, ArcelorMittal South Africa chief executive officer told the weekly.
According to the report, Lakshmi Mittal wants the government to impose a 10 per cent import duty on steel, without which his firm would have to close down plants and cut jobs.
South African trade and industry Minister Rob Davies told the weekly that a decision around an import tariff and a pricing model would be made in coming weeks.
ArcelorMittal South Africa’s biggest competitor Evraz Highveld is already struggling in a business rescue process, while Markus Hamman, chief executive officer at another major company Scaw Metals, said South Africa had become an obvious dumping ground for cheap steel and had been flooded with imports from China.
ArcelorMittal South Africa has also failed so far to find a black economic empowerment partner after initial plans did not materialise in 2010.
Having made no profit for the past five years, ArcelorMittal South Africa has lost two thirds of its value from the Rand 35 billion company that it was then.
Analysts have been pessimistic about the company’s future.
Wayne McCurrie of Momentum Asset Management considered the domestic steel market too small to compete with the likes of China.
“It’s not big enough to justify a big steel mill and the volumes required to produce steel at a competitive unit cost that would make the South African company competitive. While Arcelor Mittal SA is one of the most efficient steel operations, it is hamstrung,” McCurrie was quoted as saying.
“It sits with global competitors that are far more efficient because they can produce products for cheaper when it comes to unit costs per kilo,” he said.