ArcelorMittal SA notches up profit
• Strong demand and higher prices help steel maker overcome headwinds
Strong global demand, a 17% jump in international steel prices and lower costs helped struggling steel maker ArcelorMittal South Africa (Amsa) to its first interim profit in six years. Locally, the demand for steel, a bellwether of the economy, was at its lowest in nine years, with apparent consumption declining to 2.5-million tonnes in the six months to the end of June.
Strong global demand, a 17% jump in international steel prices and lower costs helped struggling steel maker ArcelorMittal SA (Amsa) to its first interim profit in six years.
Locally, the demand for steel, a bellwether of the economy, was at its lowest level in nine years, with apparent consumption declining to 2.5-million tonnes in the six months to the end of June. Imports declined by 31% over the period to 177,000 tonnes, partly thanks to the imposition of import duties, Amsa said.
The group reported interim headline earnings of R54m, a marked improvement on the headline loss of R1.6bn in the first half of 2017. Analysts praised the turnaround, with the share price jumping 20% to R3.65, its highest level in six months. However, it remains a far cry from its record high of R262.43 a decade ago.
The South African steel industry has been under immense pressure in recent years, as an extended period of international oversupply depressed prices while weak local demand and rising imports hurt local producers.
Overall, SA’s crude steel production has dropped by 26.5% to 6.3-million tonnes over the past decade, according to industry association Worldsteel. Local steel usage has been relatively flat over the same period, rising by only 200,000 tonnes to 6.3million tonnes in 2017.
“The return to profitability offers some short-term relief for Amsa, but in the long-term, the story remains one of decline,” said a fund manager who did not want to be named.
“The headwinds they face are just too strong, such as strong international competition and high input costs, for example on power and labour.”
Amsa CEO Kobus Verster said the group will have to cut its cost per tonne by $50 over the next two years in order to build a sustainable business. “We have to regain our position on the global cost curve,” he said.
Various areas have been identified for improvement, including simplifying operational processes at its Newcastle plant, he said. Electricity and rail costs also hamper its competitiveness, Verster said, as they are higher than those paid by its peers internationally.
The immediate focus is on concluding the sale of its 50% indirect stake in Macsteel International for $220m, a deal that will provide it with much-needed cash to pay off debt and lower its interest rate bill. Amsa’s liabilities totalled nearly R18.1bn at the end of June, compared with current assets of R21.9bn.
Amsa also had to renegotiate its debt covenants and said it believes it has “sufficient funds” to pay its debts as they come due over the next 12 months.
Some expansions are also planned, albeit small. Amsa, which employs 9,000 staff and 3,000 contractors, will spend R30m to restart the electric arc furnace (EAF) at its Vereeniging plant in the first quarter of 2019, a move that will create about 100 direct jobs. It will also start a feasibility study on a new EAF at its Vanderbijlpark plant.