Steel group ArcelorMittal South Africa (Mittal) slumped to a R518-million headline loss for the year ended December 31, 2012, on weak market conditions – a sharp pullback from the headline loss of R52-million recorded in the previous financial year.
The final quarter of 2012 was also weaker when compared both with the December quarter of 2011 and the September quarter of 2012.
Operating profit for the December quarter declined by R298-million to a loss of R583-million, when compared with the same period in 2011, while operating profit from the previous quarter declined by R428-million to a loss of R583-million.
For the year as a whole, liquid steel production of 5.1-million tons was 363 000 t, or 7% lower than the levels achieved in 2011 and Mittal’s operating profit fell by R774-million to a loss of R477-million.
However, the JSE-listed group indicated that it expected a turnaround during the first quarter of 2013, when it is expecting to breakeven.
CEO Nonkululeko Nyembezi-Heita indicated in a note to shareholders on Wednesday that the recovery was likely to be supported by a modest rise in international steel prices and domestic demand.
“Sales volumes are expected to be higher amid restocking in the market and increased production volumes,” she wrote, while warning that commercial coke sales would fall, owing to lower production from those ferrochrome producers participating in Eskom’s electricity buy-back programme.
Revenue from Mittal’s coke and chemicals business of R1.9-billion was 23% lower following a 27% fall in commercial coke sales volumes and a 3% drop in net realised prices.
During 2012, domestic conditions in key steel-consuming sectors, particularly the building and construction sector, which accounts for the largest share of steel consumption, remained weak during the year and the market had also been affected by an increased flow of finished steel product imports.
“The poor underlying demand together with destocking activities resulted in a decline in domestic sales partially offset by higher net realised prices, mainly due to a weaker exchange rate,” Nyembezi-Heita said in a statement to shareholders.
She noted that prices of key raw materials, such as coking coal, pellets and scrap had softened, but electricity tariffs had increased by 16%. Cash costs of hot-rolled coil increased by 5% and those for billets by 11%.
The cost of iron-ore from the ageing Thabazimbi mine, in Limpopo, rose 19%, while Sishen material, which is mined in the Northern Cape, remained flat on a US-dollar basis, but increased by 10% in rand terms.
Following a mediation process facilitated by the Department of Trade and Industry, Mittal and the Sishen Iron Ore Company (SIOC), which is majority owned by Anglo American’s Kumba Iron Ore, agreed to a new interim pricing agreement for the period running from January 2013 to December 2013.
The two companies also postponed arbitration proceedings relating to a long-running dispute between SIOC and Mittal over the termination of the iron-ore supply agreement. Arbitration would only resume once legal appeal processes regarding the Sishen mining rights had run their course.
Overall, group revenue for 2012 rose 3% to R32.3-billion, but steel shipments decreased by 2%, with higher-margin domestic sales falling 5% and exports rising 7%. Average net realised prices rose 7% with domestic and export prices increasing by 7% and 9% respectively. Prices for flat steel were up 5% and long steel 10%.