ArcelorMittal South Africa, the biggest steel maker in Africa, is responding to procurement problems that have plagued it since August last year by acquiring its own iron ore property in the Northern Cape. This will supply it with up to 3 million tons a year.
During a conference call to brief the media and analysts on the first-quarter results, a confident ArcelorMittal SA chief executive Nonkululeko Nyembezi-Heita said the company would not divulge details yet, but had appointed a team to investigate the resources.
“We will be able to update the market in six months’ time regarding the resource. We will acquire the property and will mine on our own account in the area,” she said.
The subsidiary of ArcelorMittal, the world’s biggest steel maker, was expecting the 2011 financial year to be stronger than the last financial year.
The giant’s near-monopoly in South Africa’s steel industry have meant that steel prices remain high, an issue the government is trying to intervene in as the resource is strategic.
The Department of Trade and Industry was last year advocating for the introduction of a “developmental steel price” which would protect buyers and the downstream industries.
Nyembezi-Heita said her firm had yet to receive the government’s steel pricing report. It has been reported that the company would increase steel prices by 4.5 percent.
She was confident the costs could be borne by ArcelorMittal SA’s consumers, among them the construction sector, which had made a comeback in 2010 after the World Cup and was growing due to maintenance needs.
“The automotive sector is robust, and looks set to have a strong performance in 2011. The packaging industry is fairly consistent,” she said.
Evan Dold, the vice-president for global purchasing and supply chain at General Motors South Africa, said the company had dealt with price increases in the steel industry by trying to negotiate lower price increases with ArcelorMittal SA and considering alternative sources at lower costs.
He said there had been total cost management, for example attempting to offset steel price increases through price reductions on other materials, absorbing increases and also partly offsetting steel price increases through vehicle price increases. Higher steel prices had a negative financial impact if these increases could not be recovered or offset, and would potentially reduce local content.
According to a Kumba Iron Ore report entitled The South African Iron and Steel Value Chain, more than 85 percent of South African steel was consumed in industry sectors for which steel’s share of the product value was typically lower than 5 percent. Therefore, iron ore typically contributed less than 1 percent to the costs of these end products and was largely insignificant in its impact on overall costs of downstream industries.
ArcelorMittal SA managed to make a turnaround after reporting that the bottom line profit was R184 million in the first quarter, compared with a loss of R496 million in the previous quarter. Because of an increase in production volumes of both flat and long steel products, domestic sales volumes had increased 36 percent, the cost of steel sales slumped 7 percent, and steel production had increased by 20 percent.
However, the attributable earnings were 75 percent lower due to a 20 percent increase in the cash cost of steel sales coupled with a 7 percent drop in liquid steel production. The company also said that the sales volumes were flat.
Revenue increased 14 percent quarter on quarter on the back of improved domestic sales and a 6 percent higher average realised prices.
The shares closed 3 percent lower at R79.61 yesterday. - Business Report
