News that the struggling Newcastle Works will close at the end of this month is yet another painful reminder of South Africa’s ongoing deindustrialisation. The development itself is not surprising, given that the KwaZulu-Natal facility has been at risk of closure since November 2023; a wind-down that was delayed when government and ArcelorMittal South Africa (AMSA) agreed to investigate ways to avert the closure.

The issues were well publicised, with the reliability and cost of the rail service to the geographically isolated mill having received much initial attention, alongside calls for some relief from surging electricity tariffs and low-cost imports.

The main lever available to the Department of Trade, Industry and Competition (dtic), however, related to AMSA’s call for the overhaul of government’s scrap-metal policy, which it claimed placed Newcastle at a structural disadvantage relative to the mini mills that used scrap in electric arc furnaces to produce steel.

At issue was the Price Preference System (PPS), which requires that discounted scrap metal be offered to domestic consumers ahead of export, as well as an export tax, which is levied on any scrap that eventually leaves the country. The policy has reduced domestic scrap prices, and has enabled mini mills to produce mostly long steel products, such as rod, bars, wire, sections and rail, at a cost below that which could be achieved by Newcastle, which uses blast furnaces to produce steel from iron-ore.

AMSA has argued that the discount is as high as 40% and suggested changes to both the PPS and the export tax to reduce the benefit to a level where Newcastle could again compete. This would have represented a major policy shift, as the scrap benefit was introduced with the explicit intention of stimulating competition after AMSA received trade protection.

By mid-December, there had been no movement beyond an ongoing review by the International Trade Administration of South Africa, initiated in September, into the “desirability of the price discounts for ferrous and non-ferrous scrap metals” provided by the PPS.

For AMSA, which has endured some six years of losses from its longs division, this represented insufficient progress, and it notified the dtic on December 21 of its intention to wind down its longs business. Besides Newcastle, AMSA’s Vereeniging Works, in Gauteng, as well as the ArcelorMittal Rail and Structural unit, located at Highveld Steel in Mpumalanga, will be closed.

The socioeconomic fallout is massive. Some 3 500 direct and indirect jobs will be shed at a time when the unemployment rate remains extreme, while the consequences for the town of Newcastle are likely to be devastating. In addition, the product ranges of the mini mills is said to be limited relative to what AMSA was able to produce, leaving the door open for yet more imports.

The development offers but a small glimpse into the fragility of South Africa’s industrial base and points to the urgent need for an overhaul of both industrial and trade policy, particularly as new trade wars loom.