ArcelorMittal South Africa (Amsa) reported an interim headline loss as Kobus Verster, the CEO of ArcelorMittal South Africa, said yesterday that load shedding, high inflation and weak demand from the key steel-consuming sector put it on the back foot.
The steel manufacturer in its financial results for the six months ended June 30 reported a headline loss of R448 million compared to 2022 first half R3 billion profit and declared no dividend for the period.
Its revenue declined from R22.17bn in the first half of 2022 to R21.04bn in the first half of 2023.
Verster said, presenting the results, domestic steel demand had remained muted, which put significant pressure on local prices and volumes.
“On a more positive note, renewable energy and regional infrastructure projects are starting to give some support for local demand,” he said.
The softness of the market, while underestimated, affected its response time to adjust the production to lower than anticipated volumes.
“Building and maintaining any semblance of operating rhythm, which is an absolute necessity in running a continuous, integrated steel-making process in a cost-aware manner, proved especially problematic,” Verster said.
However, sales volumes increased by 3%, with crude steel production 29% from 1.05 million tons in the first half of 2022 to 1.36 million tons in the 2023 first half. Commercial coke production dropped by 85% to 9000 tons, with sales volumes also down by 83%.
Amsa said if there was no load shedding and rail woes, the six-month outlook for the trading environment appeared to be improving compared to the difficult close to 2022. Unsustainable price-cost pressures and positive movements in early 2023’s international steel prices offered reasons for some optimism.
“Despite the buoyancy of 2021 and the first half of 2022 having passed, remembering that the latter is the comparable period for this interim 2023 report, the international trading environment in the first half of 2023 benefited from the end to de-stocking and less painful energy prices.
“However, locally, the trading environment caught no such tail-winds, as the burden of electricity load shedding, high inflation, high interest rates, and mixed growth – only automotive reflected noteworthy growth of 8,3% – in key steel consuming sectors such as manufacturing (+1.0%), machinery and equipment (+1.0%), mining (-1.1%) and construction (0%), pummelled already fragile consumer confidence,” it said.
The group flagged that average steel prices decreased by 8% in Rand terms. Its raw material basket increased by 2% with, in absolute terms, imported coking coal having increased by 1%, while iron ore increased by 4% and scrap decreased by 5%. After accounting for conversion cost, the variable cash cost of steel decreased by 5%, based on crude steel production.
Africa’s output increased by 4% to 8 million tons due to higher production in South Africa, Tunisia, and Libya. South Africa’s crude steel production increased by 14% to 2.4 million tonnes.
In South Africa, apparent steel consumption (ASC) for the first half of 2023 increased by 2% to 2.1 million tons, while ASC increased by 4% compared to 2.0 million in the immediately preceding six months, it said.
Looking ahead, the group said internationally, the World Steel Association expected a 2.2% increase in steel demand.
“Chinese GDP (gross domestic product) growth will continue to play a role in international steel demand and pricing trends. According to the South African Reserve Bank, 2023 GDP is expected at 0.4%.
“Steel demand is expected to improve as economic indicators strengthen. Inflation is moving back towards the target range of between 3-6% which should lessen the pressure on interest rates and assist with lifting consumer confidence.
“ArcelorMittal South Africa is positioned to navigate the immediate and near-term challenging market conditions while remaining focused on its medium to longer-term objectives,” it said.
BUSINESS REPORT