South Africa’s largest steel producer ArcelorMittal South Africa (AMSA) recorded a second-quarter recovery, following a dismal fire-afflicted first quarter. Nevertheless, it still slumped to a R123-million headline loss for the first half of the year to June 30, 2013.

The company, which is led by CEO Nonkululeko Nyembezi-Heita, also issued a warning that the third quarter would be weaker than the second quarter, owing to lingering softness in the domestic economy and rising costs.

For the six months to June 30, the JSE-listed group’s liquid-steel production was 246 000 t lower, at 2.5-million tons, than during the comparable period in 2012.

The Vanderbijlpark mill resumed normal production only during the second half of April, following repairs carried out to deal with the February fire damage.

AMSA, which has calculated the financial losses associated with the fire to be R765-million, lifted its force majeure on May 9. It is in the process of pursuing insurance claims, which could be reflected in its income statement during the second half of 2013.

In total, 361 000 t of sales were lost as a consequence of the outage – a gap more than plugged by imports of primary steel products, which increased by 40% to 650 000 t during the first six months of 2013.

Nyembezi-Heita notes that imports have taken a larger share of the domestic steel market over the past five years, during which time they have increased from levels of around 10% to around 16%. The rise is attributed, in part, to supply disruptions at AMSA’s Newcastle mill in 2011 and at Vanderbijlpark this year.

South Africa also does not have import protection and government is unlikely to introduce protection in future, owing to the dominance of AMSA, particularly in the flat-steel sector. However, tariffs could be introduced to stem the surge in finished-product imports, such as pipes and tubes, nails, bolts and structural steel components.

The group does not view the loss of market share as a permanent phenomenon, but Nyembezi-Heita says the group will have to regain the trust of it customers, many of whom have been affected by its inability to supply as a result of operational disruptions.

Following the repairs, capacity utilisation levels have recovered at Vanderbijlpark and have also improved generally across AMSA's operations.

During the second quarter the capacity utilisation at its flat-steel works, including Vanderbijlpark and Saldanha, rose to nearly 80%, up from 54% in the first quarter.

Long steel capacity utilisation increased to 84%, from 81% in the first three months of 2013.

AFRICA IN FOCUS

Also being prioritised is a plan to capture higher levels of market share in countries neighbouring South Africa, and in East Africa.

In both territories, transport and energy infrastructure programmes are supporting steel-demand growth, with demand across South Africa’s five neighbours expected to rise to around a million tons in the near term. In East Africa the market is estimated to be larger than 2-million tons.

AMSA is aiming to capture shares of between 40% and 45% of both these markets and will consider investing in distribution infrastructure should the need arise. At present, it is servicing the markets from South Africa with the assistance of local distributors.

During the six-month period, steel sales dropped 16% when compared with the same period last year to a total of 2.1-million tons, while commercial coke sales fell 9% to 210 000 t.

As a result, revenue decreased by 11% to R15.9-billion period-on-period, despite prices having increased by 6%, with domestic prices up 2% and export prices, 17%.

Exports fell by 40% and domestic shipments declined by 7%, with flat and long steel shipments falling 20% and 9% respectively.

The quarter-on-quarter results were better, however, with revenue increasing by 5%, to R8.1-billion, as a result of an 8% increase in average steel prices. Both domestic and export shipments were 4% lower with flat and long steel shipments declining 6% and 1% respectively.

Revenue from AMSA’s coke and chemicals business rose 18% to R448-million when compared with the preceding quarter, following a 47% increase in commercial coke sales and a 5% drop in realised prices.

The group expects domestic steel sales to be flat in the third quarter, but for dispatches of commercial coke to rise modestly.