ArcelorMittalSA has decreased their operating profit from R1 224 million in June 2018, the first half-year profit in almost a decade, to a loss of R222 million.
The company’s half-year financials for the period ending 30 June were released on 1 August.
Chief Executive Officer, Kobus Verster, said, after a positive 2018, the global steel industry is again facing extremely challenging market conditions in the current year as a result of weaker international steel prices, lower demand and significant increases in primary raw materials costs.
“In the first quarter of the year, the South African economy saw the largest contraction in a decade, mainly due to the decline in the mining and manufacturing sectors. Our results for the first half of the year reflect this challenging operating environment,” adds Verster.
Tariff protection required
To assist the downstream steel fabrication industry to effectively compete against the import of semi-finished and finished fabricated steel goods, additional import tariff protection is urgently required.
“Cash preservation and generation remain our primary focus in these difficult times,” adds Verster.
“However, the strategic imperative of improving our cost competitiveness against China-sourced steel and that of domestic competitors, is being severely hampered by structural disadvantages associated with unaffordable electricity, port and rail tariffs and higher raw materials costs.” Verster adds international iron ore prices have increased sharply by 28% while steel prices have decreased by 13%.
Improving efficiencies
Amsa has embarked on several initiatives to improve efficiencies and address expenditure within its control. The Business Transformation Programme initiated to address cost competitiveness, improve efficiencies, debottleneck steel production at all sites and optimise procurement contracts, is yielding results. The company is also re-evaluating steel and raw material inventory levels considering the lower market demand. This should further aid the improvement of cash generation.
The company recently announced that they have begun a consultation process in terms of Section 189(3) of the Labour Relations Act which will potentially impact about 2 000 full time positions. According to Verster there are also concerted efforts to improve its health and safety performance resulted in an improvement in its lost time injury frequency rate (LTIFR) from 0.83 to 0.38 while the company’s total injury frequency rate (TIFR) declined to 7.41 from 6.33.
“Reduction of its carbon footprint is a key imperative for Amsa. However, the timing of the introduction of the country’s carbon tax – from which imported steel is exempted – will place added financial pressure on the company,” says Verster.
Outlook
On 26 July, the company successfully negotiated the refinancing of the borrowing-based facility valued at R4 500 million for three years, on substantially the same terms and conditions as the 2017 facility agreement. The company has also entered into an agreement to purchase the Highveld Structural Mill (HSM) for an initial cash amount of R150 million and an additional R150 million conditional upon the conclusion of a commercial arrangement for the long-term supply of sizable mainline rail volumes.
“The HSM is the only facility of its kind in Africa with the ability to produce heavy structural steel, including material for railway lines,” says Verster.
“The localisation of mainline rails will support jobs, strengthen industrial capability and enable export opportunities, while allowing for the transfer of specialised intellectual property and skills associated with rail production.”
Amsa says international steel prices are expected to improve while the raw material basket is likely to be lower. “Domestic steel demand will remain under pressure until there is improvement in real infrastructure spending and economic growth. Regulated tariffs will continue to impact the company’s cost competitiveness and the volatility of ZAR/USD exchange rate is also likely to continue to impact the company’s results.”
Verster concluded by saying, they will continue to drive interventions as part of their turnaround strategy to ensure the sustainability of the business.
