BY DR SHAWN CUNNINGHAM
7 MARCH 2025

In January 2025, the announcement that ArcelorMittal South Africa (AMSA) would close its long steel operations was again in the headlines. This was unsurprising, as AMSA has been making an annual loss for over six years and has unsuccessfully lobbied the government for tariff changes. The closure in March would affect the Long Steel Division units at Newcastle and Vereeniging as well as the Rail and Structural unit at Highveld Steel in Mpumalanga. 

Many have claimed that the demise of AMSA’s long steel business is due to the superiority of the alternative technologies used in mini-mills. This is only partially true. While the primary technology in mini-mills outperforms an integrated steel mill (like AMSA) in flexibility and operating costs, certain steel varieties and qualities can only be achieved using the much more expensive and integrated steel blast furnace process technology. 

The competition is not only between physical technologies but also between different business models. Another factor is steadily declining domestic demand over the last 10 years. 

The competition between alternative process technologies

AMSA is the largest domestic steel producer in South Africa in installed capacity and production volume. Its Newcastle plant alone has 1.8 million tons installed capacity.  Despite a significant refurbishment in 2022, it has fallen short of its one million tons per annum production target for the last 10 years. AMSA’s long-steel plants are integrated plants that rely primarily on blast-furnace basic oxygen furnace (BF-BOF) technology. The blast furnace feedstock is primarily iron ore combined with coal in a massive blast furnace. The BF-BOF process allows for the continuous production of consistent quality steel, which is vital for specific markets like automotive OEMs and manufacturing and structural steel markets. Iron ore and coal must be transported to the plant by rail (or, at a much higher cost, by road). Due to shortages of suitable iron ore in the past, some iron ore had to be shipped to AMSA from abroad. The blast furnace production process is energy and scale-intensive and is detrimental to the environment.

The number of mini-mills has rapidly increased in South Africa in the last 15 years to the point where installed capacity is more than double local demand. A mini-mill primarily uses Electric Arc Furnace (EAF) technology with a feedstock of scrap metal that can also be combined with Direct Reduced Iron (a.k.a. sponge Iron). An Electric Arc Furnace uses about 30% less energy than a blast furnace and has a much lower environmental impact. The cost of transporting the feedstock to the mini-mill is much lower because it mainly uses road transport. EAF is an established technology in larger foundries and mini-mills that produce long steel products. Some mini-mills use furnaces that can melt between 100 000 to 500 000 tons a year, with steel company Scaw Metals melting 500 000 tons using electric arc furnace technology. 

The EAF process technology used by mini-mills is more efficient and requires much less investment and energy. However, the process technology AMSA uses can consistently create varieties of steel at volume, which is much harder to achieve using EAF technology. For instance, some steel varieties produced by AMSA are certified by automotive OEMs to meet their stringent quality criteria. AMSA is estimated to supply about 70 000 tons a year to the local automotive industry from its Long Division. In addition, the automotive sector already imports 300,000 tons a year of steel varieties that they cannot source locally. 

The competition between alternative business models

In 2010, AMSA lost access to preferential pricing for iron ore and coal. It used its buying power to negotiate favourable prices with smaller suppliers. Many of the larger suppliers that  historically supplied AMSA chose to sell their ore and coal at higher prices on the domestic and international markets. At the same time, the cost of rail and road transport increased, resulting in AMSA reporting losses for the last six years in its Long Steel Division. Lastly, the unreliability of rail infrastructure also increased AMSA’s costs as the company had to fall back on more expensive road transport.

Mini-mills, in turn, have benefited from the Price Preferential System (PPS) introduced by the Department of Trade, Industry and Competition (the dtic) more than 10 years ago. The PPS requires scrap dealers in South Africa to offer their scrap to local buyers at a price equal to the international price in Rotterdam minus 30%. In addition, exported scrap attracts an additional 10% export levies. This gives the mini-mills a considerable cost advantage over AMSA, and AMSA has maintained for years that the PPS is unfair. The PPS gives mini-mills a huge advantage from a raw material price perspective.

I heard some lobbyists campaigning for a government bailout for AMSA describe the mini-mills as an inferior alternative to an integrated steel plant. However, several mini-mills are global players in certain varieties of steel. For instance, Scaw Metals produces high-grade steel for safety-critical applications for international clients in North America, Europe, and China. Many mini-mills have found a niche in producing long products that meet the volume and quality requirements of their domestic and international clients.

However, there are long products that mini-mills cannot make efficiently or that would require significant additional investment to reach an efficient scale. For instance, producing rail tracks or massive steel beams is not cost-effective in most mini-mills, given their current infrastructure, though there are exceptions. Due to the challenges at Transnet, both as an infrastructure provider and also a key buyer of long steel products, few steel producers would be willing to invest in expanding their operations, especially now when general installed capacity exceeds domestic demand by almost 100%. 

Because AMSA faced fierce competition in the lower-value (but higher volume) rods, wire, and agricultural steel markets, it decided to focus more on the higher-value steel applications. For the last two years, this strategy has not helped it reach its annual goal of exceeding one million tons. AMSA’s decision allowed many small mini-mills to establish a strong position in the lower-value and smaller markets.

Another consideration is that many mini-mills have benefitted from public procurement policies. The dtic and the Industrial Development Corporation (IDC) have extended loans and investment grants to new Black-owned mini-mill operations. Several newer entrants are struggling to stay in the market due to the oversupply and fierce price competition in the lower-value market segments. 

I cannot entirely understand from the AMSA annual reports why the company has not focused more on regional or international exports to increase their volumes. I did, however, see that AMSA also reported increased competition from other integrated steel plants in the region in the last few years, with Zimbabwe specifically mentioned. 

Lastly, given the current oversupply in the domestic market, AMSA probably made the best business decision by closing its operations in the long steel market. The domestic market has shrunk too much, and the more responsive and aggressive mini-mills have eaten into the market dominance that AMSA enjoyed for a long time. AMSA announced that it will now divert its attention to its flat steel business, which still enjoys a relatively dominant market position.

Comparing the core technologies

This article is based on publicly available reports from news outlets like Engineering News, Mining Weekly, Moneyweb, and other public websites. The TIPS website's research archive contains several recent papers by Dr. Neva Makgetla that provide a more in-depth analysis of the economics and strategic decisions facing the government and industry related to steel. The Global Energy Monitor wiki at also contains interesting technical information about the Newcastle plant.