Trade and Industry Minister Ebrahim Patel has said it would be better for steel producer ArcelorMittal South Africa [JSE: ACL] to sell its plant in Saldanha than close it and harm the country's industrial capacity.
ArcelorMittal South Africa (AMSA) in a note to shareholders on Monday, said it plans to wind down operations in Saldanha, a town along the west coast. This comes after a strategic review of the company's operations earlier this year.
The company said Saldanha had lost its "structural competitive cost advantage" to allow it to "effectively" compete in the export market. Furthermore the plant is suffering "severe financial losses" which are expected to continue in the foreseeable future. The winding down process is expected to be completed by the first quarter of 2020.
Patel, who was at a Brics Trade Ministers meeting in Brazil on Monday, said the closure of the Saldanha plant and subsequent retrenchments of close to 1 000 workers would be a "harsh blow" to industrialisation in SA.
"If no solution is found with ArcelorMittal, they should consider selling the plant to ensure the country does not lose industrial capacity and workers and communities are not displaced," Patel said.
In recent months, government and public agencies had been offering support to AMSA to avoid job losses, after the company announced planned retrenchments as far back as July, as Fin24 previously reported.
Patel said the decision was "regrettable" given efforts by national government, state-owned enterprises, organised labour and others to provide support and savings for the steel producer. "These commitments follow significant tariff protection and localisation initiatives provided to protect the steel industry from the threat of imports," Patel said.
"We recognise the challenges presented to the steel industry globally from over-capacity. Our efforts are directed at maintaining a primary steel production capability in South Africa.
"We urge AMSA to continue to work with national government and other social partners to reverse this decision and find solutions which can keep the Saldanha Works in operation, and workers in employment," he added.
According to the department, there were engagements for Eskom and Transnet to provide additional support to AMSA by reducing energy and logistics costs. Patel also met with management of Kumba Iron Ore, to offer iron ore to AMSA at concessional prices.
Commitments of half a billion in annualised savings, in addition to once off savings of more than R200m were secured, the department said.
Earlier on Monday the Western Cape government issued a statement expressing disappointment that efforts to save the company had not been successful. Efforts included asking national government to include the company in the Saldanha Bay Industrial Development Zone.
The provincial government said it is willing to provide assistance to the company, especially to employees who will be affected by the plant closure.
Trade union Solidarity said it would write to government and AMSA to conduct a study on the impact of the closure of the steel plant.
"Solidarity is shocked by the announcement. We are aware of the fact that AMSA is facing major challenges in Saldanha with high input costs, a declining export market and government's economic policies, but such a drastic step gives rise to major concerns," said Willie Venter, Solidarity's Deputy General Secretary for the metal and engineering industry.
"National government simply has to revise its economic policy even more urgently to stop the rise in job losses," he said.
Solidarity warned that that the closure of the plant would have "catastrophic" consequences for local communities as it is the area's largest employer.