ArcelorMittal South Africa’s Newcastle Blast Furnace Closure Threatens to Disrupt the Automotive Sector in South Africa

ArcelorMittal South Africa (AMSA) recently announced that it would be shutting down its long steel production at the Newcastle blast furnace by the end of January.

This news has raised concerns within South Africa’s automotive sector, a key pillar of the nation’s economy.

According to Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers (NAACAM), the closure could have far-reaching consequences, particularly for automotive manufacturing, which heavily depends on local steel production.

The Importance of Local Steel for the Automotive Sector

AMSA has long been a vital supplier of high-grade steel, which is essential for manufacturing components used in the automotive industry.

Its steel has been integral to the competitiveness of the domestic sector, and any disruption in supply could have a ripple effect that extends across the entire automotive value chain.

Steel production is vital not just for South Africa’s automotive sector but for the broader economy as well.

Each 1,000 tons of steel produced adds approximately R9.2 million to the GDP and supports several jobs directly and indirectly.

This economic contribution has been critical in areas like metal fabrication, forming, and pressing, especially as these industries directly benefit from AMSA’s specialized steel for vehicle production.

Impact of AMSA’s Closure on the Automotive Supply Chain

AMSA’s exit from the market will likely result in disruptions to supply chains and manufacturing timelines.

The company is the sole domestic supplier of roughly 70 kilotons per year of specialty steel to the automotive sector, which means the closure could lead to serious shortages of auto-grade long steel.

Without an immediate local alternative, component suppliers may have to rely on importing steel, a process that comes with added costs due to longer lead times, logistics, and currency exchange fluctuations.

Importing steel could increase production costs by as much as 25%, and this would likely have a cascading impact on vehicle manufacturers and component suppliers.

Additionally, the loss of locally sourced steel could reduce the country’s ability to meet export rules of origin (RoO) requirements, which could affect the South African automotive industry’s eligibility for certain incentives.

Rising Costs and Job Losses in the Automotive Sector

The closure of the Newcastle plant will likely lead to substantial job losses.

NAACAM research estimates that around 3,500 direct jobs in Newcastle will be affected, with up to 3,000 additional jobs at risk in the auto component sector.

With South Africa’s unemployment rate already standing at a staggering 32.1%, these job losses could add even more pressure on the economy.

If production lines are forced to halt due to steel shortages or delays in importing raw materials, automakers could be forced to shift towards imports of finished components from sister plants in other countries.

This could lead to a further decline in South Africa’s automotive sector’s contribution to the economy and lead to a loss of even more jobs, particularly in the component manufacturing space.

The Long-Term Consequences for South Africa’s Automotive Sector

The impact of AMSA’s closure is not only immediate but could also affect the long-term competitiveness of South Africa’s automotive industry.

With the automotive sector playing a crucial role in the country’s GDP and export revenues, any decline in its competitiveness could undermine its global position.

South Africa’s ability to grow its automotive industry by 2035, as outlined in the South African Automotive Masterplan, is now in jeopardy without reliable local steel supplies.

The loss of AMSA’s supply could lead to plant shutdowns, production delays, and job cuts, which could undermine South Africa’s role as a competitive player in the global automotive market.

The government must step in to find measures that ensure the automotive value chain has access to the necessary raw materials, and that local manufacturers have the resources they need to stay competitive.

The Need for State Intervention and a Sustainable Path Forward

To mitigate the fallout from AMSA’s closure, some experts argue that state intervention is necessary.

Solutions could include securing a year-long buffer supply of steel from AMSA’s Newcastle plant, transitioning to local mini-mills as certified suppliers of auto-grade steel, or even keeping the Newcastle plant operational.

Without swift action, South Africa’s automotive sector could face a precarious future, with fewer jobs, reduced competitiveness, and a potentially diminished role in the global automotive market.

The closure of AMSA’s Newcastle plant presents a critical moment for South Africa’s industrial policy.

By focusing on ensuring reliable access to local raw materials, the country could strengthen its manufacturing base and safeguard the jobs and industries that rely on it.

This article was published on TDPel Media. Thanks for reading!

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