Arcelor: Import tariff or we close a plant
ARCELORMITTAL SA’s chief executive outlined an “ambitious” plan at the company’s interim results presentation at the weekend that he believes could see the steel maker invest R4.5-billion over the next five years and create 700 jobs.
About R1.1-billion would be injected into its Saldanha steel mill in the Western Cape‚ said CEO Paul O’Flaherty.
Funds would also be directed towards doubling the galvanising capacity at the Vanderbijlpark Works.
But the success of the plan‚ termed the “high road” scenario‚ would necessitate an enabling environment in which the state moved promptly to protect the local steel industry from cheap Chinese imports, he added.
China’s share of the local steel import market has risen from 39% in 2013 to 65% currently.
It would also require a new price deal with Kumba Iron Ore‚ which supplies the local subsidiary of global parent ArcelorMittal with up to 6.5 million tons of iron ore a year.
ArcelorMittal SA said it had benefited by R780-million from the agreement in the first half of last year when spot iron ore traded at $134 a ton. Iron ore makes up nearly half the input costs required to make steel.
However‚ a supply glut in the market‚ coupled with a stronger dollar‚ has since seen the price of steel plummet nearly 60%.
This has resulted in the company losing hundreds of millions of rand in the second half of last year and the first half of this year.
“We want the high road‚” O’Flaherty said‚ as opposed to the “low road” in which the CEO questioned how many steel companies would still exist if trading conditions remained unchanged.
He said the company was willing to drop its import parity price model in exchange for a fairer price‚ and to improve its operational efficiencies.
He stressed that the local steel industry needed help from the government in the form of import protection.
Local steel makers have applied for tariffs of between 10%-15% on Chinese steel imports. “If we can’t get the decision we require‚ we will close Vereeniging [Works].”
A decision on the plant‚ which employs nearly 1 000 workers‚ would be taken at the end of the month.
The company would also pursue lower iron ore prices with or without Kumba.
The chief economist at the South African Institute of Race Relations‚ Ian Cruickshanks‚ questioned the viability of the company’s plan to reduce production costs in a subdued economic environment in which steel demand was low.
“It is a very ambitious plan‚” Cruickshanks said.
“If the economy is growing at less than 2% there is very little on the demand side to increase volumes and bring down production costs.” — BDLive