Arcelormittal South Africa headline loss of R518m

In a period characterised by depressed economic conditions and weak steel demand, ArcelorMittal South Africa has reported a headline loss of R518 million for the year ending 31 December 2012, compared to a loss of R52 million in the prior year. EBITDA declined by 35% to R1.12 billion from R1.72 billion in 2011 due to a modest  drop in domestic steel dispatches and a substantial decline in commercial coke sales. However, 2012 saw a significant improvement in cash flow, operational stability and the best safety record to date with zero fatalities.

Chief Executive of ArcelorMittal South Africa, Ms Nonkululeko Nyembezi-Heita said: “As anticipated, 2012 was a very tough year with subdued economic activity and poor  demand. At the same time, we are pleased with the strides we have made in achieving operational stability and containing costs.  Safety is an area where we have seen significant improvement over the last year as can be seen in our lost time injury frequency rate, which dropped to 0.61 from 1.24 a year earlier”.

Domestic steel demand continued to be weak, driven by sluggish demand from the building and construction sector, the largest steel consumer.

On a compounded basis, steel demand in South Africa has grown at an annual average rate of only 1.1% over a twenty year period.

Domestic steel sales declined by 5% as a result of weak demand and destocking in the second half of the year, while net realised prices in rand terms increased by 7%.

Dollar prices of key raw materials such as coking coal, pellets and scrap were flat, while electricity costs increased by another 16%.

Liquid steel production was down 7%, with capacity utilisation at 66%, which was marginally lower than the 68% achieved the previous year.  Compliance with environmental legislation, coupled with high electricity price increases, necessitated the closure of three electric arc furnaces (EAF) in Vanderbijlpark during October 2012. This effectively reduced the company’s annual achievable liquid steel capacity from 8.0 to 6.5 million tonnes per annum.

The poor financial performance was exacerbated by a 27% drop in commercial coke sales due to the shutdown of furnaces by ferrochrome producers participating in Eskom’s electricity buy-back programme. Ferrochrome producers account for approximately 90% of ArcelorMittal South Africa’s commercial coke sales.

The company realised a net cash inflow of R445 million for the year bringing its closing cash  position to R884 million from R439 million the year before.

Production costs were in line with inflation and well maintained on the back of softer raw material prices and a marked improvement in operational efficiencies, but this was not sufficient to offset the impact of lower sales.

Ms Nyembezi-Heita further commented that, “We expect the loss making position to be reversed in first quarter, amid signs of improved domestic sales volumes as well as marginally higher prices”.

ArcelorMittal South Africa has raised objections to Eskom’s proposed 16% yearly increase in electricity tariffs for the next five years. Electricity prices, which have risen 21% over the last six years, are having a significant impact on the company and were one of the factors behind the closure of the Vanderbijlpark electric arc furnaces in fourth quarter.