South Africa’s largest steel producer ArcelorMittal South Africa (AMSA) continued its recovery in the third quarter from a miserable first quarter, which was affected by a fire at its Vanderbijlpark mill, on the back of greater operational stability. However, it warned that earnings were likely to soften in the final quarter of the year, owing to both seasonal factors and general domestic market weakness.

The JSE-listed group reported a third-quarter headline profit of R199-million, which represented a major improvement on the R168-million loss reported for the same period of 2012 and a 35% increase on the R147-million recorded in the second quarter.

However, its earnings before interest, tax, depreciation and amortisation of R343-million were R266-million lower than the previous quarter, which the company attributed to higher operating costs and an unfavourable regional sales mix. Even a R179-million insurance payout arising from the February fire was not sufficient to mitigate the decline.

A significantly higher share of products was exported during the quarter, with domestic dispatches decreasing by 7% and exports rising 75%. As a result of that sales mix, average net realised prices dropped 1%.

Nevertheless, CEO Nonkululeko Nyembezi-Heita described the performance as “encouraging” in light of the difficult market conditions and highlighted, in particular, the stability of operations over the past quarter.

Liquid steel production was 41 000 t higher than the corresponding period in 2012, but 92 000 t lower than the previous quarter, following the closure of the electric-arc furnaces. Capacity utilisation increased from 81% in the preceding three months to 83%.

Total steel sales were 1.1-million tons, an increase of 3% compared to the prior year’s corresponding quarter and 9% on the preceding quarter, while commercial coke sales rose 23% quarter-on-quarter and 40% year-on-year as the ferrochrome industry resumed operations in the wake of the termination of Eskom’s electricity buyback programme in June.

Net cash dropped to R575-million from R1.1-billion along with the normalisation of the working capital position after the fire.

Nyembezi-Heita said the iron-ore settlement with Kumba, which was announced earlier in the week, would provide significant cost benefits relative to the interim supply arrangement in place since March 2010 and the high costs associated with the Thabazimbi mine.

The new agreement, which ends several long-running disputes, would take effect from January 1, 2014, and endure until the end of life of Sishen mine.

As a result of the settlement, AMSA would no longer have an interest in Thabazimbi and was expecting to write off R1.8-billion as a result.

“The agreement makes provision for sourcing additional volumes of up to five-million tons a year albeit at a different price. Moreover, we still have an offtake agreement with Assore from their Beeshoek mine and work is ongoing at the Northern Cape iron-ore project which should see us submit an application for a mining right in the latter part of next year,” Nyembezi-Heita reported.