Amsa acts on poor results

Steel giant cites high costs

ARCELORMITTAL South Africa (Amsa), Africa’s steel giant, said as it released poor results yesterday that the high cost of electricity was threatening its competitiveness and it would meet the National Energy Regulator of SA (Nersa) next week to discuss lowering electricity prices.

Amsa reported a R714million and R1.161 billion increase in its operating and headline losses, respectively in the first half of this year, owing to higher coking coal and iron ore costs, the strengthening of the rand against the dollar and continued weakening of the domestic economy.

Revenue increased by 12.6 percent to R19.15bn, mainly due to an 18.9percent increase in average net realised steel prices.

Speaking at the results presentation held at the JSE yesterday, Amsa chief executive, Willem de Klerk, said the company would negotiate with the likes of Eskom and Transnet for cheaper prices. This after the government previously awarded tariffs to shield against cheap Chinese imports.

“Our Saldanha plant, as an example, where we are paying 180 percent more than the most expensive plant in the ArcelorMittal group internationally. It goes up from $0.6 cents a kW/h to 0.22c a kW/h. We have been talking to Eskom for a year to try to get the numbers reduced… Last week we were told to go directly to Nersa. Our first meeting with Nersa is next week,” he said.

Realistic prices “We’ll have to get realistic prices for businesses in distress like the steel industry.”

In terms of Transnet, De Klerk said Amsa had for the last five years paid a tariff that was 50percent more than the producer price index.

“You cannot be sustainable with the rest of the world when it costs you more to take any product a few kilometres in South Africa than it is to bring a product into South Africa from China,” he said. Amsa plans to dispose of non-core assets, improve productivity and introduce structural changes, including its Newcastle plant.

The loss from operations increased by R714m to R983m, primarily due to the higher coal and iron ore prices.

However, Gerhard Papenfus, the chief executive of the National Employers’ Association of SA, said Amsa’s huge losses were testimony to the unsustainability of Amsa as a business due to their ageing plant and high production cost.

He said Amsa’s cost of production for hot rolled coil (base) now stood at $685 (R8915) a ton compared with the world average trading at $433 a ton.

The mess “They justifiably blame the mess that the South African economy finds itself in as a result of the credit downgrades and negative growth, for reduced production, but they omit to mention that plant failures in December last year at Vanderbijlpark caused huge backlogs even amidst reduced demand.

“The latest results just conform the fact that the 10 custom duties, followed by multiple price increases, which severely prejudiced the steel downstream, had little effect on Amsa’s performance,” he said.

Amsa said flat liquid steel production decreased by 83 000 tons and plant utilisation decreased to 79 percent compared with 83percent last year due to a rupture of the stove at blast furnace C at Vanderbijlpark works in the fourth quarter of last year, and the blast furnace D incident that resulted in a decrease in production of 80000 tons.

Amsa’s shares rose 3 percent to R5.15 on the JSE yesterday.