
ArcelorMittal South Africa (AMSA) has announced on short notice that it will be closing its Newcastle steel blast furnace at the end of January, posing an immediate challenge to the nation’s carmakers.
AMSA is the sole domestic supplier of roughly 70 kilotons per annum of specialty long steel grades to the automotive sector, meaning that original equipment manufacturers (OEMs) need to urgently find a replacement or risk shutting down production until a new supplier is found.
A huge blow to the industry
AMSA has been central to the success of the South African auto sector, providing high-grade materials needed for critical components on vehicle assembly lines.
Its exit from the local market will therefore create a ripple effect across the entire value chain, including downstream industries, according to the National Association of Automotive Components and Allied Manufacturers (NAACAM).
It is estimated that every 1,000 tonnes of steel produced in South Africa contributes R9.2 million to the GDP, benefitting the auto industry as well as metal fabrication, forming, and pressing stakeholders.
AMSA also gave a major competitive advantage to the country’s OEMs, which are able to source and export metal components into global markets.
For example, electric vehicles (EVs) assembled in the United States have used components forged in the Eastern Cape, made from specialty steel coming out of the Newcastle blast furnace.
With the plant shutting down on such short notice, there’s a considerable risk of supply chain disruptions and delocalization in the near term which will degrade the industry’s competitiveness over the medium to long term, said NAACAM CEO Renai Moothilal.
There are no other local suppliers of auto-grade long steel immediately available at OEM-certified standards that can meet the volume demanded by the country’s carmakers, which means component suppliers will either need significant buffer stock, else they will be forced to import steel to remain operational this year.
Steel importation may raise production costs by up to 25% due to longer lead times, logistics, and forex volatility.
The loss of local content is also likely to affect South Africa’s ability to meet export rules of origin requirements – an essential part of international trade agreements.
Delays for consumers, both locally and abroad, are another possibility, which could do long-term harm to South Africa’s reputation as a reliable automotive hub.
South Africa’s auto industry is a significant contributor to GDP, accounting for 15% of all manufacturing exports.
However, the steel disruption is likely to impact OEMs’ cost-competitiveness on the global market, which may accelerate a concerning trend where car companies are choosing to invest in other countries to the detriment of the facilities they have here.
China, India, and Japan have the highest number of steel-making blast furnaces in the world, and it is no coincidence that brands from these countries have achieved an enormous market share in several export regions over the past few years, including South Africa.
Finding a new source of steel is no easy task, as material changes are subject to extensive approval processes that can involve vehicle crash testing and even re-homologation.
This procedure usually takes at least 12 months but can last even longer for critical safety components.
Given the short notice of AMSA’s shutdown, OEMs that are in mid-cycle production may have to import materials or source entirely finished components, impacting the estimated 116,500 workers directly employed in vehicle manufacturing, as well as thousands more at various points in the supply chain.
Roughly 3,500 jobs have already been cut at the Newcastle plant, and another 13,000 employees could be retrenched if companies are forced to lower their workforce in order to mitigate higher production costs and lower outputs.
NAACAM declared that state intervention is urgently required to find measures to ensure OEMs have access to local specialty steel.
This includes getting AMSA to commit to the required production out of the Newcastle furnace for at least a full year in order to create a sufficient buffer, giving time for other mills to become certified suppliers of auto-grade steel.
NAACAM has also encouraged AMSA to explore avenues to keep the Newcastle plant open.
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