Toyota and VW send a warning to government

Carmakers in South Africa are imploring the local unit of ArcelorMittal SA and the country’s trade minister to work together to delay the planned closure of steel mills this month. 

Associations representing both automotive component makers and car manufacturers — including Volkswagen AG and Toyota Motor Corp. — said in near-identical letters seen by Bloomberg that they need at least a year to source alternative steel supplies.

They warned that plants may close and that components made locally would need to be imported, threatening thousands of jobs in an industry that employs more than 116,000 people. 

ArcelorMittal South Africa Ltd., or AMSA, on 6 January said it would close mills that produce so-called long-steel products in the towns of Newcastle and Vereeniging and a rail-fabrication facility in eMalahleni because it couldn’t make them profitable.

The operations are the only local suppliers of several products used in industries ranging from construction to mining and carmaking. 

The associations “on behalf of their members, therefore, urgently make an appeal to the Department of Trade Industry and Competition to support AMSA in finding at least a transitional solution,” they said in the letter to Trade Minister Parks Tau.

This is needed “to avoid auto-sector disruptions and the severe threat of de-localisation and, ultimately, de-industrialisation,” they said. 

AMSA said Chief Executive Officer Kobus Verster was copied on the letter sent to the trade minister but wasn’t aware of a letter sent directly to the company.

Tau said government and company officials engage “on a daily basis” and met in person Wednesday.

“We are cautiously optimistic,” he said Thursday. “We are engaging to avert a situation where there would be a closure — discussions are at a sensitive stage right now.”

The Automotive Business Council — also known as Naamsa — didn’t respond to a request for comment on the letter.

“The absence of this reliable local steel supply could lead to line stoppages, plant closures and volume cuts, jeopardizing both the sustainability of component suppliers and original equipment manufacturers,” National Association of Automotive Component and Allied Manufacturers Chief Executive Officer Renai Moothilal said in a statement sent to Bloomberg.

He confirmed the authenticity of the letters.

Steel imports could be 25% more expensive, he said.

Moothilal said the impact on local supply chains could see 3,000 jobs lost immediately and 13,000 jobs lost over time. The auto industry employed more than 116,500 people directly last year.

AMSA, which produces steel from iron ore, had initially announced plans to close the operations about a year ago before putting that decision on hold in July.

The company said the businesses are unviable because of poor rail service, high electricity costs, a flood of low-cost imports and government policy that keeps the price of steel scrap — used as a raw material by AMSA’s smaller rivals — artificially low.

In the letters to AMSA and the minister, the associations said that their industries used 70,000 tons of “speciality long-steel grades” annually that can only be supplied locally by the company.

They said they hadn’t been given time to find alternative sources through imports, and a change in steel suppliers would result in a round of length, stringent testing, and approvals.

That would likely see them using already-approved parts from suppliers outside South Africa, damaging the local car-spares industry, they said.

“Localized parts will be delocalized for a significant duration,” they said in the letters.

The automotive industry accounts for about 5.3% of South Africa’s gross domestic product, and cars and auto components account for 15% of exports.

Stellantis NV, Ford Motor Co., Mercedes-Benz Group AG, BMW AG and Isuzu Motors Ltd. also make cars in South Africa.