JSE-listed steel producer ArcelorMittal South Africa on Wednesday stated that the first quarter for the 2009 financial year would see a slight improvement in steel demand, compared with the 800 000 t of liquid steel produced in the fourth quarter of 2008.

The fourth quarter production levels were considerably lower than the average quarterly output of about 1,5-million tons, recorded in the previous quarters of 2008.

CEO Nonkululeko Nyembezi-Heita said liquid steel production for the first quarter in 2009, was likely to rise to 1,2-million tons, which would result in steel shipments also increasing to 1,1-million tons.

“Let me stress that this is not an indication that this level of sales will be sustainable beyond the first quarter, as our forecasting no longer looks at anything further than the current quarter,” said Nyembezi-Heita.

“Judging from our order book for the three months of this quarter, we anticipate an upturn slight, but an upturn none the less, for the first quarter 2009, compared with fourth quarter of 2008. With that said, steel demand remains well below levels achieved in the first half of 2008, with a knock on effect in production volumes, and this is likely to remain so for at least the foreseeable future in terms of 2009.”

In anticipation of this, ArcelorMittal South Africa would remain as cost conscious as it was during the fourth quarter of 2008, and the company would continue to implement cost control measures.

“The global crisis essentially forced us to reconsider our [expansion] plans. The last time we announced anything about our plans they were very growth focused, we were seeing a massive increase in consumption of steel not only in Africa, but also in sub-Saharan Africa. And our investment programme was being geared towards that. What happened right now is that all the growth-oriented programmes have been postponed, and these are postponed indefinitely until we can get a better sense of the direction of the market, as we move forward.”

ArcelorMittal South Africa’s 2009 investment plan would be geared towards projects that would either improve the health and safety of its employees and contractors, or at projects aimed at remediating the company’s environmental performance.

Nyembezi-Heita said that the company’s capital expenditure would be an estimated R1,4-billion, compared with the R1,8-billion earmarked for 2008.

“With all that said, we remain committed to growing our business, and are convinced that sub-Saharan Africa remains an attractive investment proposition in the medium- to long-term.”

Nyembezi-Heita noted that markets remained extremely volatile and added that any forecast made by ArcelorMittal South Africa, had to take that into account, and had to be treated with the necessary caution.

She added that although steel prices had remained steady after a 40% drop in September, venturing at prices beyond the first quarter was extremely difficult, given the extremely poor visibility in the market.

“We could say that we expect steel prices to inch upwards, particularly in the second half of the year and we believe that the current level of steel prices is not sustainable.”

While international commodity prices have come off sharply since September, the impact on ArcelorMittal South Africa’s earnings would be delayed past the first quarter, when new contract prices would be brought into effect. As such, the company was expecting substantially lower earnings in the current quarter, compared to the fourth quarter in 2008.

The company on Wednesday reported a 65% increase in headline earnings for the 2008 financial year, on the back of higher global steel prices early in the year.

Headline earnings increased to R9,5-billion, and revenue for the year ended December 31 rose by 36%, to R39,9-billion.

ArcelorMittal SA said a significantly improved income contribution from the Coke & Chemicals business, and higher gains on foreign exchange transactions and financial instruments also boosted earnings.

However, the company had experienced an “extraordinary” collapse in demand during the fourth quarter of 2008, as the impact of the global financial crisis filtered through to the South African economy.

High interest and inflation rates resulted in a slowdown in residential building activity as well as reduced consumer spending on durable goods such as automotives and household appliances. For 2008, as a whole, the company’s sales volumes were down by 13% year-on-year.

“The year started off well, with strong domestic demand for the first three quarters of the year, driven mainly by the increase in public sector infrastructure spending. However, the global financial crisis has become a global economic crisis and the contagion spread quickly to the South African market. This led to a sharp decline in demand in the fourth quarter, followed in short order by a collapse in steel prices worldwide,” said Nyembezi-Heita.

The company said it expected lower earnings in the first three months of the new financial year, as the full impact of the decline in steel prices would be felt.

Nyembezi-Heita stated that amid the challenge presented by volatile markets, the company would enter 2009 with a sound financial position, but would continue to emphasis cash and cost savings throughout its operations.

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