Steel producer ArcelorMittal South Africa (AMSA) announced last week that it had initiated consultations with employees regarding its proposed business-restructuring programme, which could result in job losses.

CEO Wim de Klerk said in a statement that it was premature to provide an estimate as to the number of employees who could be retrenched. However, it was possible that more than 50 employees could lose their jobs, which “means that this will fall within the ambit of a large-scale retrenchment”. The JSE-listed company currently employs over 8 600 people directly and more than 3 200 contractors.

The retrenchment talks follow AMSA’s announcement of a R1.6-billion headline loss for the six months to June 30, a performance that was attributed to weak domestic market conditions, particularly in the infrastructure markets, and surging input costs.

However, they also come amid a strong increase in protection for primary steel products.

Besides the institution of 10% base protection on a range of steel products over the past two years, government this month also began enforcing safeguard duties of 12% on hot-rolled coil (HRC) and plate. These safeguards have been approved by the International Trade Administration Commission of South Africa and have been communicated to the World Trade Organisation.

The rate of safeguard duty will remain at the 12% level until August 10, 2018, after which the duty will decline to 10% in the second year and 8% in the third. Given that HRC and plate already enjoy base protection of 10%, the effective duty on these steel products will be 22% in the first year, falling to 20% and 18% respectively in the two outer years.

“While we acknowledge and appreciate the steps already taken by government to protect the local steel industry, such as import duties, safeguards and the localisation of steel for State infrastructure projects, these will only assist in the medium to long term and, in the meantime, we must focus on the costs that are within our control in the face of this extremely challenging trading environment,” De Klerk said.

The restructuring was being implemented, he added, in light of lower steel demand, ongoing imports and weak international prices, which were hampering exports. In addition, exchange rate volatility and rising input costs were negatively impacting on the group’s financial position.

“Unfortunately, interventions implemented by the company to improve business performance have not yielded the required results and AMSA continues to face sustainability challenges.”

Besides retrenchments, the company was exploring several other initiatives to reduce costs and improve efficiencies. These included procurement savings, commercial initiatives to enhance sales volumes, and short-term actions such as further productivity improvements. AMSA was also considering selling noncore assets and was assessing its production footprint.

In addition, the company had approached the National Energy Regulator of South Africa directly with a request for discounted electricity tariffs.

De Klerk did not believe that the outlook for the steel industry and the company was likely to change in the foreseeable future, however. “It is for this reason that we have taken the difficult decision to begin a consultation process with employees regarding a proposed restructuring of AMSA.”

He said that the company would “engage constructively with government and labour in an effort to reduce the impact of the changes, particularly with regard to potential job losses, and will consider all proposed avoidance measures before forced retrenchments are implemented as a last resort”.