ArcelorMittal asks for cheap power
Steelmaker needs to be on equal footing with global rivals, says CEO
Steelmaker ArcelorMittal SA, which has reported a full-year profit for the first time in eight years, has applied for lower electricity tariffs.
Steelmaker ArcelorMittal SA, which has reported a full-year profit for the first time in eight years, has applied for lower electricity tariffs.
ArcelorMittal SA CEO Kobus Verster said on Thursday that regulated prices, which include electricity and rail costs, account for 18% of the company’s total costs. A favourable electricity pricing model will boost the company’s cost-saving initiative, he said.
Africa’s largest steel producer plans to cut its costs by $50 per ton by 2021 and the company is on course to achieve that, he said. “We are monitoring these things on a weekly basis.”
The company’s share price rose 7.87%, the highest in five weeks, to close at R3.70.
ArcelorMittal’s applications to the National Energy Regulator of SA (Nersa) for a special price dispensation which normally lasts for two years — come in the midst of stiff opposition to Eskom’s application to Nersa for a tariff hike of more than 15% a year over the next three years, with several organisations and companies warning of the dire consequences of such a move.
Anglo American CEO Mark Cutifani told the mining indaba in Cape Town this week that Eskom is the biggest risk to the company’s SA business in the short term.
Speaking after the release of the financial results for the year to December, Verster said ArcelorMittal, whose sites include Vanderbijlpark, Saldanha, Vereeniging and Newcastle, wants electricity tariffs that would enable it to be competitive.
“We need to have an equal footing versus our competitors,” Verster said. Electricity prices in SA are about 30% higher than the international benchmark.
ArcelorMittal has submitted different applications for its various sites as the economic drivers and conditions for the various operations are different, said Verster.
He expects the applications to be finalised “in three to four months’’.
Analyst Ian Cruickshanks of the Institute of Race Relations said on Thursday ArcelorMittal is operating in a tough environment. “The global market is oversupplied. Locally, this is an industry that is not getting a lot of support. There is no investment from the manufacturing, mining and construction sectors.
“They are doing their best in an environment that is against them,” Cruickshanks said.
Verster said about 769,000 tons of steel are still being imported. “That is 16% of the local consumption. The real issue actually is the 4% reduction in local consumption. You see a reduction in the imports but you will not see an equivalent improvement in our local sales because the domestic market is also shrinking,” Verster said.
The company’s strategy is to increase volumes. “It is very difficult to be competitive, from a cost perspective, if you are running at 70% capacity. We have to produce what we currently do on a stable basis. Then we have to start increasing our capacity,” he said. The additional volumes could be exported to the rest of Africa, he said.
While the company’s fullyear earnings came under pressure from weaker domestic demand, ArcelorMittal benefited from higher steel prices and increased sales volumes, Verster said. The company said there was increased demand for steel in key markets such as China, Europe and the US.
Revenue increased by 16% to R45.3bn, primarily as a result of a 12% increase in average net realised steel prices, from R8 338 per ton to R9 301 per ton, and higher sales volumes of 5%.