He noted that the positive outlook on future demand formed the basis of the company’s expansion plans.

Reato said that the steel producer had a “regional commitment to the African continent”, with 76% of steel going to the domestic market and 88% going to Africa. The focus on Africa was illustrated by a 22% drop in total exports in order to meet local demand.

Speaking at the group’s financial results presentation – which would be Reato’s last before taking up his new post at the company’s parent in London – he said that the demand would be driven by 2010 FIFA World Cup projects, government’s R400-billion-plus infrastructure spend and a generally booming construction industry.

There would, however, be some potentially unhelpful influences to this positive outlook in the form of the energy crisis and the rand:dollar exchange rate, as a relatively strong rand would erode the competitiveness of domestically manufactured exports.

In terms of the electricity situation, ArcelorMittal confirmed that its loss in production was 1 000 t/d as a result of operating at the 90% power supply level.
Despite this, Reato remained optimistic about the resilience of South African businesses, and their ability to cope with the power supply interruptions and enforced energy savings.

Production during the first quarter of 2008 would be affected by the relining of the Corex and Midrex plants at the Saldanha works, which started this month and will last some ten weeks. However, ArcelorMittal intends to offset this by increasing scrap melting through the steel plant.

The slightly lower sales volumes that Reato said were expected for the quarter should be counterbalanced by higher steel prices.

Prices expected to rise further

Internationally, Reato’s view was that the global steel market would remain “tight”. He explained that the US had seen a price increase of $120/t to $150/t since December, while Europe had seen a price rise of about €100/t, adding that South Africa was not isolated from these increases.

Recent steel price increases have been motivated by rises in input costs, with ArcelorMittal reporting a 14% increase in raw material costs for the year ended December 31, 2007.

In terms of input cost trends, ArcelorMittal projected rises across the board. The iron-ore price was expected to go up “substantially” this year, and coking coal was fore- cast to come under cost pressure owing to global scarcity – spot prices were said to have jumped by 65%. Reato said that scrap metal prices, which rose by 30% last year, would climb sharply in 2008. He added that there had also been an increase in domestic consumption, which led to reduced supply.

Speaking in Johannesburg, Reato noted that port delays had increased by three times during 2007 and, coupled with changing trade patterns, had led to augmented freight rates.

Last on the list of input costs were the prices of base metals which surged: tin was up 66%, nickel 55%, ferroalloys rose by 60% and zinc was stable after a 146% price increase in 2006.

Reato concluded that these input costs would remain high and would continue to support higher steel prices.

The favourable steel price out- look is expected to remain for the near future and Reato’s view was that Chinese overcapa-city had failed to ruin the positive outlook of countries outside the world’s most prolific steel producer.

Reato said that he did not think oversupply in China would have a negative impact on the steel price, as the Chinese government was trying to curb exports through reducing them by 20-million tons this year and by further consolidating the industry.

His expectation was that the country’s production, which accounts for 37% of world steel production, would continue to grow, but at a slower rate.