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Hard Knock

ArcelorMittal South Africa braces for over 1bn rand in losses

By Xolisa Phillip, in Johannesburg
Posted on Friday, 24 July 2020 18:27

France ArcelorMittal

Steel producer ArcelorMittal South Africa will idle two blast furnaces in the country’s economic heartland to curb the effects of a collapse in global demand and forecasts it will record more than one billion rand in interim losses.  

In its latest trading statement, the listed company projects:

  • A headline loss of R2bn (R638m in 2019).
  • A loss of R1.7bn (R644m in 2019).

In response, ArcelorMittal South Africa will idle the company’s “blast furnace C at Vanderbijlpark and the Vereeniging electric arc furnace until demand recovers.”

Vanderbijlpark and Vereeniging are in Gauteng and situated south of Johannesburg.

Despite this development, “… ArcelorMittal South Africa will be able to supply the forecast demand for the second half of the year [with the current asset utilisation] and will continue to reassess the need to return additional capacity to production,” said the company.

READ MORE South Africa: Storm clouds gather around ArcelorMittal SA

Its interim results for the six months to 30 June 2020 are scheduled for publication and presentation on 30 July 2020.

A combination of factors, including a plunge in steel demand, have contributed to the dire financial outlook. The company has proposed a number of measures that encompass a section 189 staff downsizing process.

However, the National Union of Metalworkers of South Africa (Numsa) has criticised management, saying the company is using COVID-19 as an excuse to retrench. This week, Numsa staged pickets outside ArcelorMittal South Africa’s operations in Vanderbijlpark and Vereeniging, Gauteng.

“It has also proposed that salaries and benefits must be reduced by 20% as an alternative to retrenchments. We believe the COVID-19 pandemic is being used as an excuse to restructure the organisation, and render hundreds of workers jobless,” said Numsa.

“Recognising the dire unemployment situation the country faces, we remain open to finding a flexible solution to do so,” is ArcelorMittal South Africa’s position on the matter.

Ministerial intervention

South Africa’s minister of Trade and Industry, Ebrahim Patel,  is attempting to stem the crisis confronting South Africa’s steel industry and the broader metals value chain.

READ MORE  ArcelorMittal South Africa snubs Patel’s expressions of interest for Saldanha

Patel has instructed the International Trade Administration Commission of South Africa (Itac) to institute an urgent process that will determine measures to support the metals industry.

For the duration of the Itac process, which is two months, Patel has ordered an immediate halt to the export of ferrous and non-ferrous waste and scrap. But existing export permits or applications made before the trade policy directive was published in the government gazette, will not be affected.

  • “Scrap metal is essential for the domestic processing industry, which is crucial for the manufacturing industry and for infrastructure development,” explained Patel.
  • “Due to the steep global increase in prices and reduced economic activity, the industry has called on government to urgently assist it. The objective … is to determine appropriate amendments to the Price Preference System guidelines which can address the shortage in affordable good quality scrap metal,” added Patel.

Numsa has welcomed the investigation and said: “Rising scrap prices place increased pressure on mini-mills which are struggling to survive and maintain employment.”

Relief hard to come by

Reflecting the fluidity and uncertainty brought on by the COVID-19 pandemic, the weakening exchange rate between the US dollar and the South African rand will not benefit ArcelorMittal.

“Ordinarily, a weakening exchange rate has a positive impact on the financial results of the company. However, with the severe erosion of revenue during the economic lockdown, and given the large foreign-denominated payables position, the company will report realised and unrealised exchange rate losses for the period,” it said.

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