Primary steel producer ArcelorMittal South Africa (AMSA) has reported its strongest interim earnings before interest, taxes, depreciation and amortisation (Ebitda) in a decade at R3.21-billion.
This compares with a loss of R1.2-billion reported for the six months ended June 30, 2020.
The company says its higher earnings were supported by a 79% increase year-on-year in the average international steel dollar price, as well as a 42% increase year-on-year in realised rand prices, in the six months ended June 30.
Coupled with a 10% increase in sales volumes and a 36% increase in liquid steel production, AMSA generated a headline profit of R2.4-billion, compared with a R2.6-billion interim loss posted in the comparable six months of last year.
Free cash flow of R985-million generated helped to reduce the company’s net debt, which is now at R2.7-billion.
CEO Kobus Verster says the strong interim results reflect the benefits of AMSA’s new operating model and improvements made to its structural cost position, notably regarding strategic raw materials and fixed costs.
He adds that this interim performance was achieved against the backdrop of one of the most challenging operating environments in the company’s 93-year history.
The challenges included two Covid-19 waves, ramp-up challenges associated with restoring and accelerating production in the complex integrated steelmaking environment, a long maintenance stop at the Newcastle blast furnace to address damage caused as a result of the initial lockdown, a highly inconsistent rail service and tragic safety incidents.
The recovery in the global steel environment since the second half of 2020 has accelerated in 2021. Activity levels in steel markets have continued to recover.
Strong demand and low supply chain inventories – following significant destocking in previous periods – have supported a recovery in steel spreads, meaning the difference between steel prices and raw material costs.
Verster explains that market inventory levels are increasing, albeit at varying speeds for different products. By the end of June, AMSA’s monthly production levels and dispatches were largely balanced.
He points out how limitations in credit insurance available to the steel industry are presenting serious challenges to the industry at the moment. To this end, AMSA is working with customers to manage supply, given that many customers do not have the necessary credit cover lines to fund back-orders.
Meanwhile, global crude steel production increased to one-billion tonnes by the end of June as economic stimulus packages continued to benefit the mining, manufacturing and infrastructural sectors, while supply chains remained under pressure.
The company’s average capacity utilisation, excluding the Saldanha Works, increased to 59% in the six months under review, against 39% in the corresponding six months of last year, and is currently at 85%.
Liquid steel production increased by 36%, or 403 000 t, from 1.1-million tonnes in the prior comparable period to 1.5-million tonnes in the first half of this year.
Total sales volumes increased by 10%, or 116 000 t, to 1.3-million tonnes in the six months under review, owing to a 21% rise in domestic sales and a 39% fall in seaborne exports, as volumes were reallocated to Africa Overland markets.
A tragic safety incident at the company’s Vanderbijlpark coke-making operation was the main reason for lower commercial coke production.
Although commercial coke production was 22% lower year-on-year at 91 000 t, supplemented with available inventory, sales volumes were 61% higher at 193 000 t.
Apparent steel consumption (ASC) in South Africa for the first half of this year increased by 9% to 2.2-million tonnes.
The company further states that total steel imports of primarily hot rolled coil, galvanised sheet and tinplate increased by 25% to 687 000 t, compared with the preceding six months, because of supply chain constraints in the local market.
This is 31% of South Africa’s ASC, which is expected to reduce as the supply chain normalises owing to recovering domestic output, the cancelation of steel export incentives by China and the imposition of import duties by Russia.
Although the European Union is extending the current safeguard measure on imports of certain steel products for three years, and the US Section 232 measures remain in force, “disappointingly”, South Africa’s safeguard duties are set to lapse in August.
The company’s overall realised steel price increased by 57% in dollars and 42% in rand terms, as the average dollar/rand exchange rates strengthened by 13%.
Average international dollar steel prices increased by 79%. This compares with iron-ore indices which increased by 101%.
The company’s raw material basket (iron-ore, coking coal and scrap), representing 43% of total cash cost, was 2% higher in rand terms, which is pleasing, given the 44% increase in the international raw material basket, AMSA says.
This reflects the work done in diversifying the sources of raw materials.
AMSA’s Business Transformation Programme (BTP) contributed a further R1-billion in savings, adding to R3.6-billion of improvements achieved since the programme started in the second half of 2018.
The company reported four fatalities in the first half of the year, with an investigation under way following a particular safety incident at the Vanderbijlpark operations, which occurred in February and resulted in the death of three employees.
Further, one of the priorities of the ArcelorMittal group is to lead the steel industry globally on sustainability. This is reflected in the XCarb brand which brings together all of the parent ArcelorMittal group’s low and zero‐carbon products and steelmaking activities, as well as wider initiatives and green innovation projects, into a single effort focused on achieving demonstrable progress towards carbon neutral steel and the net-zero commitment by 2050.
Leveraging the relationship with its parent company, AMSA is exploring, in collaboration with various large industrial partners, research organisations, and business initiatives, opportunities relating to carbon capture and storage (CCS), blue and green hydrogen applications in directly reduced iron (DRI) production, and improved energy efficiency initiatives.
Saldanha Works has been identified as being ideally suited for green DRI production, with the company’s integrated steelmaking sites being prime candidates for CCS technology.
AMSA will finalise its implementation roadmap for meaningful carbon reduction by the end of 2022.
In South Africa, the company will need funding support for carbon neutrality initiatives along with an enabling environment to encourage cross-sector and industry collaboration.
Looking to the second half of the year, AMSA says stronger gross domestic product growth in South Africa will bode well for steel demand and unless there is damage to overall business in South Africa from further lockdowns, the company expects a healthier operating environment.