Steel producer ArcelorMittal South Africa (AMSA), which announced its first interim profit in six years and may be on track to deliver its first full year profit since 2010, has initiated a study for the construction of a new electric arc furnace (EAF) at its Vanderbijlpark mill and has also announced the reopening of the Vereeniging mill.
CEO Kobus Verster says the company will also seek to increase volumes at its existing operations, as part of a ‘business transformation project’ that aims to reduce AMSA’s overall cost of production by $50/t.
The cost-cutting target is premised on improved productivity levels and overhauled operating practices and has been set following an international cost benchmarking exercise, highlighting a lack of competitiveness of the South African plants.
It also follows a restructuring of the organisation, which resulted in staffing levels falling by 400 people, in the absence of any forced retrenchments. AMSA currently employs around 9 000 staff directly, as well as some 3 000 contractors.
“The next phase of our strategy is to increase our volumes at our existing assets. At Newcastle, Saldanha and Vanderbijlpark there is still room for capacity increases, with fairly limited capital expenditure – we just need to move much closer to the international cost benchmarks.”
During the interim period to June 30, AMSA increased liquid steel production by 8% to 2.6-million tonnes and raised capacity utilisation to 85% compared with 79% during the interim period in 2017.
The company is now also considering an increase its overall nameplate capacity with the proposed restart of the Vereeniging EAF and with the possible development of a 500 000 t/y to one-million-tonne-a-year new EAF at Vanderbijlpark.
A budget of R30-million has been set aside for restarting of operations at the Vereeniging plant, which was closed in 2015 at the height of AMSA’s financial and operational difficulties, exacerbated by a surge in imports.
Controversially, the company has since been granted import protection of 10% across a range of long- and flat-steel products, as well as additional safeguard duties on hot-rolled coil (HRC) and plate. The three-year safeguard, approved in 2017, provides additional protection of 12% on HRC and plate in the first year, declining to 10% and 8% in the outer two years. The duty is in addition to the 10% base import duty. During the interim period, AMSA reported that imports of primary steel fell by 31%, or 392 000 t.
Production at Vereeniging is expected to resume by year-end and create 100 direct jobs.
Verster says the decision to restart production has been informed partly by an improvement in market conditions for long steel and partly by a desire to reduce operational complexities at Newcastle, where “structural” problems are undermining its competitiveness. Restarting Vereeniging will allow Newcastle to focus on fewer grades and address on-going mill scheduling problems.
At Vanderbijlpark, meanwhile, AMSA will not reopen its mothballed EAF facilities, which were closed for cost, logistical and environmental reasons. Instead, it is studying the development of an entirely new EAF plant, or plants, that will be fully integrated with the downstream steel shops at the complex and complement existing blast-furnace production.
Vanderbijlpark’s current nameplate capacity stands at around 3.2-million tonnes and the new EAF plant could increase that capacity to above four-million tonnes, depending on the scale of plant.
Verster says it is premature to offer an investment estimate, and expects that it will be three to four years before the project, should it receive board sanction, enters production.
“It will be a greenfield project within the Vanderbijlpark complex and will give us the flexibility to switch between iron-ore and coke, or using scrap,” Verster explains. AMSA calculates that South Africa currently has excess scrap metal and forecasts that the scrap balance will improve further in the coming years.
Besides the availability of scrap the electricity price path will also play a material role in the project’s economic viability.
POWER RELIEF? WATER WORRIES?
Verster reports that AMSA is in discussions with Eskom regarding possible tariff relief across its operations and indicates that it plans to make a formal submission for respite under a framework endorsed by the National Energy Regulator of South Africa (Nersa).
Eskom CEO Phakamani Hadebe has indicated that the utility is actively seeking to revive business with energy intensive customers, which have either shut or curtailed output as a result of surging power costs over the past ten years. Hadebe revealed recently that Eskom had confirmed 3.5 TWh of sales with nine customers, which would result in additional revenue of R2.9-billion over the coming two years.
The Nersa framework stipulates that applications be made at a plant level and AMSA intends making its submissions for its Newcastle and Saldanha plants in the near future. Verster would not be drawn on the nature or duration of the relief being sought, saying only that its impact would be “material”.
“I think we have a good argument at both plants. Saldanha is an export-oriented operation and its energy costs should be competitive to people we compete with. Newcastle has structural disadvantages and requires a level playing field.”
The Vereeniging start-up is not dependent on receiving a discounted power tariff. However, Verster is concerned about threats of power cuts to the indebted Emfuleni municipality from August, which could affect power availability to the Vereeniging mill. However, he is optimistic that the municipality and Eskom will reach a settlement ahead of the mill’s restart.
The Vanderbijlpark complex receives power directly from Eskom. However, load-shedding in the area could affect water treatment, which, in turn, could affect steel production. “We get our electricity directly from Eskom, which will not be subject to load-shedding, but we get our water from the municipality.”