ArcelorMittal South Africa (AMSA) CEO Wim de Klerk says he still expects the steel group to enjoy a better second half than was the case in the six months to June 30, but admits that the recent strengthening in the rand against the US dollar is likely to weigh on financial performance.

The JSE-listed group has not reported a profit since 2010 and reported a headline loss of R458-million in the first half of 2016.

However, the company reported a 10%, or 210 000 t, rise in sales volumes during the interim period, as it recaptured market share from imports on the back of greater tariff protection. In addition, it announced several price increases on flat and long products during the period.

De Klerk, who took over as CEO in July, says the focus remains on the factors within management’s control, while also noting the significant progress made in securing tariff protection for primary steel, as well as the undeeming of foreign steel in local-content calculations for products designated by government for domestic sourcing.

Nevertheless, the strong recovery in the rand is hurting, particularly as there has not been a commensurate rise in steel prices.

“I’m still positive that we will have a better second half than the first, but it is being tainted by the rand/dollar exchange rate,” De Klerk explains.

At the end of the first half the rand was trading at weaker than R15 to the dollar and it is currently better than R13.50. Over the same period, steel prices have only recovered modestly, particularly when compared with key steel inputs such as coking coal and iron-ore.

De Klerk is also concerned about the flat-lining domestic economy, as well as the recent rise in scepticism within some sections of government about whether the industry should receive further protections – AMSA is seeking further safeguard duties on several products, including hot-rolled and cold-rolled coil.

De Klerk also believes there is a need for business to reach an accord with key utilities such as Transnet and Eskom to improve the outlook for energy- and logistics-intensive businesses, the competitiveness of which have come into question as a result of surging tariffs.

He reports that he has already had meetings with key State-owned company shareholders – the Industrial Development Corporation and the Public Investment Corporation – to raise his concerns and to canvass solutions for sustaining primary and downstream companies in the metals and engineering sector.

One immediate prospect relates to AMSA entering into a venture to restart the heavy structural mill at the mothballed Highveld Steel & Vanadium plant in Mpumalanga.

Under the agreement, which is yet to be finalised, AMSA’s Newcastle mill will supply blooms and slabs for conversion into structural steel products currently not being produced locally.

“The beauty of the deal is that we will recover some jobs . . . and, through the joint venture, produce products that are currently being imported.”

Whether AMSA eventually takes an equity position in the mill is currently the subject of discussion between the various role-players, including the business rescue practitioners.