ArcelorMittal’s best performance in 15 years

Ending a three-year profit drought.
ArcelorMittal's plant in Vanderbijlpark, south of Johannesburg. Image: Reuters/Siphiwe Sibeko

On the back of a 91% increase in international steel prices and a 47% bump in local prices, ArcelorMittal South Africa has stormed back into profits, announcing its best performance in 15 years on Thursday.

Earnings before interest, tax, depreciation and amortisation (Ebitda) came in at R8.6 billion for the year to December 2021. Operating profit swung from a loss of R963 million in 2020, when local and international markets were brutally interrupted by Covid-19, to a profit of R7.9 million for the 2021 financial year.

These promising results were far from effortless, says CEO Kobus Verster, involving the ramp-up and stabilisation of production post-Covid, putting in place improved safety systems, and dealing with the July riots and downstream labour labour strike and the impact this had on expert markets.

Unreliable electricity supply and worsening rail logistics, aggravated by a fire at Transnet’s Richards Bay facility, added to its woes.

Read:
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ArcelorMittal signs IPP agreement at its Saldanha operation

The first half of 2021 saw a strong recovery in demand as steel inventories were re-stocked, resulting in firming prices and better margins. Demand remained strong in the second half, though prices were off their record highs.

Average international dollar steel prices increased by 91%, iron ore by 48%, coking coal by 82% and scrap by 68%.

An encouraging sign of the market buoyancy was the improvement in plant utilisation to 60% in 2021 from 42% in 2020. Crude steel production increased by 34%, or 769 000 tonnes, from 2.2 million tonnes to 3 million tonnes in 2021.

Also encouraging was the 25% jump to 4.5 million tonnes in apparent steel consumption, driven by the recovery in construction, mining and manufacturing.

Realised steel prices in US dollars increased by 62%, and by 47%in rand terms due to the strengthened US dollar-rand exchange rate.

Diversification of raw materials – primarily iron ore, coking coal and scrap – resulted in these costs growing just 10% compared with the 42% increase in international raw materials basket in rand terms. Raw materials account for 43% of cash costs per tonne.

Electricity tariffs went up 14%, and fixed costs by 47% to R7.4 billion as a result of a conscious decision to focus on improving reliability and quality.

Revenue surge

Revenue for the year surged 61% to R39.7 billion. Net borrowings as a percentage of equity fell to 13.9% from 154.6% the prior year.

The outlook for global steel demand remains generally positive heading into 2022. In South Africa and neighbouring countries, it is likely that demand will ease back to more moderate growth levels, says ArcelorMittal.

While demand for steel remains high, prices have eased back from recent highs.

Prospects for the global steel industry depend to a large extent central banks hike interest rates, which in turn could result in slower growth and weaker demand for steel.

ArcelorMittal’s share price was down almost 8% (trading at R9.22 at around 1.30pm) following the release of the results, indicating some profit-taking.

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