Steel producer ArcelorMittal South Africa (AMSA) has reported its best financial performance since 2008, with headline earnings surging to R6.86-billion in 2021 from a R2-billion loss in 2020.

No dividend was declared, however.

CEO Kobus Verster explained that, following years of losses, the immediate focus was to reduce debt further and to assess some of the investment opportunities that were arising, including those that could support the decarbonisation of its operations.

AMSA would publish a decarbonisation road map in the third quarter of this year, but was already preparing to move on some “no regret” investments, including the procurement of up to 200 MW of renewable energy.

None of the individual projects would exceed the 100 MW threshold catered for in a recent electricity market reform, which allows distributed plants below 100 MW to proceed without a licence and to wheel electricity across the grid and sell to third parties.

AMSA is also assessing a shift to lower-carbon scrap-based steel manufacturing at both Newcastle and its mothballed Saldanha Works, where producing zero-carbon direct-reduced iron for export, using green hydrogen as an input, is being assessed as part of a longer-term revival strategy.

The 2021 turnaround was also overshadowed by six workplace fatalities during the year, as well as a rise in workplace injuries and a deterioration in its lost-time injury frequency rate.

Verster reported that safety efforts were being intensified to eliminate fatalities, with the support of external advisers as well as from within the ArcelorMittal Group, including operators from Brazil.

Three of the deaths occurred in February last year with a portion of a 90 m stack at one of the Vanderbijlpark Works’ coke batteries failing and falling onto the control room in which the employees were working.

HIGHER SALES & PRODUCTION

Besides the price tailwind, the 2021 financial recovery was also attributed to higher sales and production, as well as a strong recovery in prices, with the group’s overall realised steel price in dollars increasing by 62% and by 47% in rand terms.

The JSE-listed group’s crude steel production increased by 34%, or 769 000 t, from 2.2-million tonnes in 2020 to 3-million tonnes, and the company’s average capacity utilisation increased from 42% in 2020 to 60% in 2021.

Verster reported that capacity utilisation was currently at 79%, following a ramping up of production and the restoration of stability after the restart of operations in late 2020 and early 2021.

Capacity utilisation of above 80% is being targeted and improved over time, together with de-bottlenecking projects to increase capacity at the mills incrementally.

“A return to stable, reliable production is key to our commitment to improving our customers’ service experience after a difficult 2020 and early-2021,” Verster said, reporting that the Vanderbijlpark and Newcastle operations completed successful maintenance programmes on their blast furnaces in November and December.

The group’s sales volumes increased by 13%, or 284 000 t, to 2.5-million tonnes, underpinned by a 16% rise in domestic sales to 2.2-million tonnes. Exports decreased by 5% to 302 000 t.

MORE IMPORTS

Imports also played a larger role in meeting demand last year, with apparent steel consumption in South Africa having increased by 25% to 4.5-million tonnes, driven by the recovery of construction, mining and manufacturing.

Imports of primarily hot rolled coil, galvanised sheet and tinplate increased by 47% to 1.4-million tonnes and constituted some 30% of South Africa’s steel consumption for the year, up from 25% in 2020.

Ongoing trade protection has been heavily criticised by domestic consumers, particularly during periods of serious steel shortages in 2020 and 2021.

Nevertheless, AMSA said that it would continue to support actions that target unfair trade practices, but noted that the safeguard duties it enjoyed on some products were not extended beyond August 10, 2021.

Verster expressed disappointment at the suspension of the safeguards, arguing that other countries were actively moving to protect their steel producers and “we are moving against that trend”.

That position is unlikely to attract any sympathy from domestic consumers, some of which have been calling for the complete elimination of all protection, owing to ArcelorMittal’s inability to satisfy demand.

The group says global demand for steel remains positive, but it expects demand in South Africa and the region to ease back to more moderate growth levels in 2022.

It would focus on improved production reliability and on winning back market share from imports.

TRANSNET CONSTRAINT

However,  Verster warned that volume recovery would also depend on the reliability of the rail service provided by Transnet, the under-performance of which had already disrupted raw material deliveries.

The deterioration in Transnet’s service had intensified over the past 18 months as a result of cable theft and a lack of availability of spares within the State-owned company. But it formed part of a long-term trend across the group’s steel mills, which were designed to receive material by rail but were now relying increasingly on road transporters.

“Today at Vanderbijlpark, we will receive, on a monthly basis, more than 6 000 trucks carrying iron-ore and coal.

“Now, you can imagine that doesn’t fit into your logistical system and you have to start incurring additional cost to move material using yellow equipment, if it’s available.”

There have been periods whereby, owing to a lack of delivery, the company has had to stop its furnaces to prevent a freezing of material and to protect its assets.

There were ongoing engagements with Transnet on the matter, but Verster saw the underperformance of Transnet as a “very real threat” to ramping up volumes further in 2022.

“Aggravated by the high electricity and logistics cost in South Africa, improving ArcelorMittal South Africa’s position on the global cost curve, while bettering its product offering to customers, will be critical to the next phase of its ‘Transforming for Sustainable Growth’ strategy,” he told shareholders.