Steel and vanadium producer Evraz Highveld says relations with its more than 2 300 workers are improving “steadily” following a four-week strike in July and August last year and a slow and “difficult” resumption of operations, which negatively affected its fourth quarter production and even spilled over into the first quarter of 2013.

The group reported a major decline in full-year production of both steel and vanadium, primarily as a result of the strike, and also announced a 22.4% slump in revenue to R4.4-billion and a massive 2 195% fall in net profit from R45-million in 2011 to a loss of R943-million last year.

CEO Mike Garcia reports that the company has now transitioned to the four-shift schedule from the previous three-shift system, which precipitated the industrial-relations breakdown and that it is also in ongoing formal engagements with its two recognised unions, the National Union of Metalworkers and Solidarity.

Senior executives were meeting with union officials and shop stewards on a monthly rotation at which detailed business updates were being provided.

Garcia is, thus, hopeful that trust will be restored and that the upcoming wage negotiations will be concluded without material disruption. The company’s existing three-year wage deal with its workers expires in June and Evraz Highveld is aiming to conclude another three-year settlement.

Efforts are being made to communicate the need to ramp-up production during the first and second quarters, when the company is expecting to benefit from favourable demand and price tailwinds for both steel and vanadium.

The group’s steel order books are full, while vanadium prices have strengthened since December, owing to global supply tightening. Vanadium, which is used as an alloy to strengthen steel, is currently trading at between $30/kg and $33/kg, as opposed to levels of between $24/t and $27/t, which prevailed for most of 2012.

Garcia reports that some of the current domestic demand for steel is being supported by the Transnet elements of the 18 strategic infrastructure projects (SIPs) currently being tracked and supported by the Presidential Infrastructure Coordinating Commission.

However, whether steel demand rises ahead of gross domestic product (GDP) growth rates will depend materially on the pace at which the SIPs are delivered, a question on which the “jury is still out”.

Evraz Highveld is of the view that demand growth could be between 1.2 and 1.5 times GDP growth rates should the SIP projects materialise as planned – economists expect the South African economy to grow by around 3% in 2013.

“But it remains to be seen just how fast these strategic infrastructure projects take place.”

Another key focus of the group is to progress its energy savings and self-generation plans, including two major cogeneration projects.

A prefeasibility study for a 24 MW to 30 MW cogeneration facility has been completed and the environmental-impact assessment is currently under way. Should it proceed, the plant will produce 2.1-million MWh/y of electricity and reduce its reliance on Eskom.

A second longer-term 70 MW cogeneration project is also being considered, but will only become feasible once the company has completed is advanced reduction technology projects.

More immediately, attention is being given to a range of smaller energy saving and efficiency initiatives, including an iron-ore sizing intervention that has the potential to save 160 000 kWh/t.

Despite the lower-than-anticipated Eskom tariff increases as determined by the National Energy Regulator of South Africa, which has stipulated an average 8% increase for the period from April 1, 2013, to March 31, 2018, Garcia says energy mitigation projects “are some of the most important projects we have”.

The group is also “eagerly awaiting” to learn what tariffs it will be charged by Eskom from April 1, given the likelihood that the industrial tariffs will be used to subsidise poorer consumers over the five-year period. How far above the average 8% level these could be has not yet been disclosed.

Garcia expects the company to move into a breakeven position in the first quarter of 2013.