ArcelorMittal South Africa appears to have partly used its financial report to send a veiled SOS to government about the worrying state of the country’s steel manufacturing industry.
In reporting an operating loss of R477 million for the year ended December, ArcelorMittal allocated a significant portion of the blame towards high electricity prices as doled out by state owned Eskom.
It is a well known fact that South Africa’s steel industry was built on the foundations of cheap electricity which combined well with abundance of critical raw materials like iron ore and coal. Cheap electricity is now a thing of the past while the iron ore situation hangs in the balance due to the dispute between ArcelorMittal and Kumba Iron Ore. But then ArcelorMittal is unable to advance this argument forcefully because it comes with a catch. It is an argument which will land ArcelorMittal in a corner when facing government demands for developmental pricing of steel. What is good for the goose should be good for the gander.
While noting that trading conditions were harsh in 2012, ArcelorMittal said “electricity prices, which have risen 21% over the last six years, are having a significant impact on the company and were one of the factors behind the closure of the Vanderbijlpark electric arc furnaces in fourth quarter”.
Te group added that “The poor financial performance was exacerbated by a 27% drop in commercial coke sales due to the shutdown of furnaces by ferrochrome producers participating in Eskom’s electricity buy-back programme. Ferrochrome producers account for approximately 90% of ArcelorMittal South Africa’s commercial coke sales”.
ArcelorMittal is worried about further electricity tariff increases proposed by Eskom. The utility has applied for 16% annual increase in tariffs for the next five years. ArcelorMittal said it has raised objections to Eskom’s proposed increase.
Looking ahead the group’s CEO Nonkululeko Nyembezi-Heita said “We expect the loss making position to be reversed in first quarter, amid signs of improved domestic sales volumes as well as marginally higher prices”.
“We expect a turnaround from the loss making position realised in the previous quarter to a breakeven in the first quarter. This view is 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. Commercial coke sales on the other hand are expected to be down due to lower production by some ferrochrome producers participating in Eskom’s electricity buy-back program”.