A R C E LO R M I T TA L SOUTH AFRICA
ARCELORMITTAL
Positive Outlook for Africa’s Leading Steel Producer PRODUCTION: Karl Pietersen
These are challenging times for South Africa’s steel industry, but the unrivalled industry-leader, ArcelorMittal, is promising that change is coming and a return to positivity is close. A new CEO, a strong history, and a significant share of the local market make for a positive outlook for this South African powerhouse. 2 / www.enterprise-africa.net
INDUSTRY FOCUS: CONSTRUCTION
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While there is no doubt about the quality of work coming from ArcelorMittal’s South African operation, uncertainty about the long-term future of the business continues. The company has faced fines, fires and financial losses. There have been strikes, stalemates and now steel tariffs as the US and China enter a cold trade war, but the company has always managed to come out the other side, displaying a resilience comparable to that of its enduring products. Starting life in South Africa in 1928 as Iscor, the country’s steel parastatal, back then steel was seen as a creator of jobs, and a much needed tool for the war effort. Over the following decades, the company’s reputation and reach grew, obtaining new locations and extra skills. By 2001, the decision had
been taken to unbundle Iscor from its mining operation and Kumba Resources was established, listing separately on the JSE. In 2003, LNM Holdings took the controlling stake in Iscor and the company’s name was changed to Ispat Iscor Limited. By 2005, the company was known as Mittal Steel South Africa Limited after a subsequent acquisition, the following year saw the company become ArcelorMittal South Africa. Today, the ArcelorMittal group is headquartered in Luxembourg and is one of the world’s most powerful and influential steel producers with reach across the globe, employing some 220,000 people. In South Africa, activity is overseen by the Vanderbijlpark HQ and the company supplies the South African market with more than 61% of its steel
requirements. The production balance is sent for export into sub-Saharan Africa or elsewhere in the world. In December 2017, ArcelorMittal South Africa announced that Kobus Verster would take the reins from retiring Wim de Klerk. During his time at the top, de Klerk was known for implementing several cost cutting measures in an effort to halt loss making. Verster, former head of Aveng who has also previously been a senior at ArcelorMittal SA, is tasked with continuing momentum and restoring the company back to profitability and sustainable performance. On the resignation of de Klerk, the company said: “Challenges remain and we will commence with a search to appoint a new CEO who can continue to implement our strategy and structurally improve the performance of the business.”
// DEMAG’S NEW DOUBLE V-GIRDER QUADRUPLES LIFTING CAPACITY Demag, one of the oldest crane manufacturers in the world established almost 200 years ago, has developed a new Double V-Girder crane which is capable of a 50T lifting capacity – four times that of the Single Girder. The double-girder overhead travelling cranes offer exceptional load capacity for a low deadweight. Their outstanding crane geometry also provides for extremely good travel characteristics, which minimises wear on the end carriages and crane runway. The load hook can be raised between the two crane girders, which allow large lifting heights to be achieved. The crane offers high long and cross-travel speeds thanks to high-performance double-girder design. The girders can be adapted to building structure requirements and has minimum approach dimensions thanks to the compact travelling hoist design. “Since the launch of the V-Girder in 2016, 60% of all our single girder cranes produced locally are now V-Girders”, said Richard Roughly, Senior Manager: Sales & Marketing at Demag South Africa. “They have revolutionised load handling”.
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ARCELORMITTAL SOUTH AFRICA
// INTERNATIONAL STEEL PRICES ARE STRONG AND WE ANTICIPATE THAT THEY WILL REMAIN STRONG SO EVEN AT THESE LEVELS, WE SHOULD BE ABLE TO INCREASE OUR EXPORT SALES // On his appointment (starting in February), Verster said to Business Day TV: “We have some initiatives and plans to being the cost base down… we are looking at alternative
raw material suppliers and, where we are totally uncompetitive is with electricity and rail, so we are planning to engage authorities to see how we can get better dispensation for steel production. “International steel prices are strong and we anticipate that they will remain strong so even at these levels, we should be able to increase our export sales.” OPTIMISTIC FINANCIALS His comments came after ArcelorMittal SA released its annual results for the year ending 31 December 2017. A mixed presentation saw an increase in revenue, a decrease in headline loss, positive EBITDA, improvement in B-BBEE status, but all of this was framed by volatility with the Rand against the Dollar which
significantly impacted the business. The results also stated that ‘poor economic conditions’ both locally and globally were big contributors to slow demand. But, since then, the economic picture in South Africa has changed dramatically following the installation of President Ramaphosa. Business confidence and investment sentiment are up compared to last year, and feeling in markets is of positivity following the new President’s pledge to root out corruption in South Africa. Interesting points from the 2017 results include a 19% increase in revenue, following a 15% increase in average net steel prices. Headline loss decreased from R2,589 million to R2,518 million. Positive EBITDA of R650 million was achieved in the final quarter of the year, the
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INDUSTRY FOCUS: CONSTRUCTION
// IN TERMS OF OUR IMMEDIATE FUTURE, I AM OPTIMISTIC ABOUT THE MARKET OUTLOOK FOR 2018 // first time a positive figure has been recorded since 2016’s third quarter. Steel imports declined by 195,000 tonnes for the year following the implementation of various safeguard duties in the middle of 2017. The company’s market share for flat steel products increased to 75%. Globally, the company performed
SALDANHA WORKS
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well, despite a number of challenges. “Global steel demand in 2017 saw the strongest growth since 2013, and with structural supply side reform, this drove higher utilisation rates and improved steel prices and spreads,” said Chairman and CEO, Lakshmi Mittal. “In terms of our immediate future, I am optimistic about the market outlook for 2018. Global steel market conditions remain healthy and we anticipate an increase in demand in our markets. Financially, ArcelorMittal has never been stronger. Looking to the future, we are taking positive action to ensure we adapt to long-term trends and identify opportunities for our business,” he said.
CAUGHT IN TRADE WARS ArcelorMittal SA produces a wide range of high-quality flat and long steel products. Hot and cold rolled plate, galvanised coil, various bars, rails and rods, and other structural and specialist products are all manufactured across the company’s various South African sites. For ArcelorMittal, exporting some of these products has been an important earner for the company, but the company’s ability to export has been threatened recently after US President Donald Trump slapped universal trade tariffs on imported steel and aluminium products in April – 25% on steel and 10% on aluminium. The
ARCELORMITTAL SOUTH AFRICA
South African government, specifically, Trade and Industry Minister Rob Davies, has written to President Trump to ask that South Africa is exempted from the tariffs but his efforts have so far been in vain. The thought is that South Africans could lose their jobs, and big steel producers like ArcelorMittal could be forced to hold back on investments until the future is clear. South Africa has called the tariffs unfair and has stated that it is being unnecessarily caught up in a trade dispute between the US and China. “South Africa remains open to engage US authorities towards finding a mutually acceptable outcome,” said the DTI.
But ArcelorMittal remains South Africa’s largest steel contributor and comfortably controls significant market share, producing approximately 4.8 million tonnes of saleable steel. The company continues to use its relationship with the global group to access leading R&D and technology, as well as sizeable captive supplies of raw materials and outstanding distribution networks. “The company’s ability to generate profits and cash throughout the fluctuations of the steel cycle is testimony to the success of years of intensive business re-engineering and the cultivation of a continuous improvement culture that has embedded ArcelorMittal South Africa’s
position among the world’s lowest cash cost producers of steel,” the company says. So while challenges remain for ArcelorMittal in South Africa, and its new CEO has certainly had to hit the ground running, this is an enduring business that has ridden the many highs and lows of the past nine decades and will likely do the same in the future. Expect improvements through 2018, but the focus will very much be on cost cutting and returning the business, in the long-term, to sustainable profitability.
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May 2018
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