Industrial gases and welding products group African Oxygen (Afrox) MD Tjaart Kruger says that the company has not received its bulk volume allocation from refineries, which is causing problems for it, especially with liquefied petroleum gas (LPG).
“We are concerned about the refineries’ capabilities going forward. We must establish a better supply chain in LPG, which will include importation in the next year or two,” Kruger said at the Afrox interim results presentation for the six months ended June 30.
He added that, although the company has made good progress, cost and price management and plant reliability will remain challenges going forward.
“We have made huge strides in managing our costs but they will remain a focus area going forward in an economy that has labour inflation of over 10%.”
On price management, he added that the company was comfortable with its competence in managing pricing but warned that the fragile economy was not going to save the company – it needed to save itself.
“I do not believe that for the rest of the year, we are going to see huge growth. July is going to be a disaster for most companies in view of the strikes we have had. We have to manage those issues and get through them as an economy, which puts a damper on expectations for the second half of the year,” said Kruger.
Afrox also announced that it had been unsuccessful in the renewal of the Highveld supply agreement, which had led to an impairment of the R152-million assets associated with its Highveld plant.
Evraz Highveld Steel & Vana-dium’s decision not to renew a gas supply contract followed Highveld initiating arbitration against Afrox last year, because it lost a “substantial volume of tons” of steel and vanadium because of gas supply disruptions.
Kruger pointed out that capacity at its Pretoria and Wadeville plants would be increased to fill the gap of supplying gas to the merchant market if the Highveld plant was closed.
“We will have enough products for at least three years. The argon will be procured from other sources. “It is embarrassing for us to have lost that contract. It is not something that we planned, but that is not the end of Afrox,”
He noted that the tonnage business was important from an integration point of view, but relatively small if one looked at the numbers.