ArcelorMittal posts strong results as earnings rebound

‘The better performance was off a strong global recovery in steel demand, as well as prices’: CEO Kobus Verster.

FIFI PETERS: South Africa’s biggest steelmaker, ArcelorMittal, reported a bumper net profit this time around of R6.6 billion for the 2021 financial year. That is from a loss of almost R2 billion in 2020. Revenue is up strongly and debt is down significantly. It looks like what made life for the steelmaker a lot easier this time around was the more-than-doubling of the international steel price over the period to record highs. We’ve got the CEO of ArcelorMittal, Kobus Verster, joining the Market Update to provide clarity for us.

Kobus, thanks so much for your time. How does it feel this time to report a profit to your shareholders, who have been quite patient with the group’s ups and probably mostly downs in the past decade?

KOBUS VERSTER: Good afternoon. Obviously it feels good, but also rewarding for the staff and our service providers who have [worked hard] over the last few years, especially in the last three years, to restructure and turn around the company.

FIFI PETERS: What you have reported in your statement is that the Ebitda [earnings before interest, tax, depreciation and amortisation] that has been recorded this time around has been the strongest recorded since 2008. Now we’re going back to the global financial crisis times, which feel like another era if you compound what Covid-19 has done to time. But the question then becomes how long the good times can keep on rolling for the group?

KOBUS VERSTER: Obviously the better performance was off a strong global recovery in steel demand, as well as prices. I think we saw a period of extreme positivity. Some of the prices or prices internationally have already moderated, but are softer. They didn’t collapse like after the 2008 events, so we are more positive that we will see a better international and also domestic steel environment going forward. So definitely a better outlook than in the past.

FIFI PETERS: Can you just paint or give a bit of colour to that positive outlook, particularly for the steel environment and the price? What are the factors that are likely to keep prices supported or perhaps in some books elevated?

KOBUS VERSTER: I think that at the moment obviously there’s much more caution by China. They have reduced their incentives to export, so there will be a lot less exports from that region in the world. Secondly, prices are supported currently by higher raw material prices. We will see that carry forward. So there will be much more balance in demand and supply internationally, and not an aggressive oversupply.

Also you will see the process of moving into decarbonisation, so I think a lot or all steel mills all over the world will have to start focusing on investing in green steel – and additional capacity I think would be less of an option.

FIFI PETERS: All right. Just those high raw material prices that have been feeding into this global upturn of inflation – and I suppose at these levels no one is too sure at what point we reach peak – inflation in your business, what does it mean for you? How is it being tackled?

KOBUS VERSTER: I think you have to divide it into a few areas. Firstly, from a raw material perspective we’ve been very successful in limiting our increases substantially below what happens internationally. Secondly, rail and electricity become very difficult to manage from a cost perspective, but also from a reliability perspective, and I think we need to strategically address those issues in the medium to longer term.

Then the other normal fixed-cost productivity in those things is always something that, in a commodity industry like ours, we have to continuously work at to ensure that you remain competitive internationally.

FIFI PETERS: The revenue line – one can’t ignore just how strong it was this time, up around 61%. I do know that a lot of your product goes to the rest of the continent. Can you give us a bit of colour as to what’s driving the demand, particularly from the continent, and whether we can interpret this as perhaps stakeholders in the continent moving to plug the wide and huge infrastructure gap that needs to be plugged to get Africa growing again.

KOBUS VERSTER: I think if you look at the growth in the revenue line of 61%, that was off the back of a 13% increase in sales volumes. Demand is roughly at the same type of level it used to be in 2019, and actually a bit worse. One of the big differences is re-stocking. We started the year – domestically in the region and internationally – with very low stock levels. So a lot of the top-line growth or sales growth is into normalising stock levels.

But going forward, I think the regional economies close to us, Africa and inland, do have the opportunity to uplift demand from South Africa, because currently a very small portion of our production is going into Africa inland, as we define it, the market. So longer term I think there’s definitely a growth prospect for companies like ourselves and others in South Africa.

FIFI PETERS: Talking about South Africa, the home market then, and still sticking to infrastructure because your product will be key to get some of the infrastructure plans up and going again, how much of the shovel-ready projects that we were promised throughout various deliveries from government, from the infrastructure symposium to the reconstruction recovery plan – how much of those are you seeing lifting off, just based on demand for your product locally?

KOBUS VERSTER: I think definitely renewables have started; that is lifting off. Obviously there’s a big need for rail, water and housing. So hopefully the president will surprise us positively this evening [in Sona] and announce some positive concrete steps to unlock some of those water, student housing, social housing as well as Eskom projects. We remain and have to remain optimistic around those.

FIFI PETERS: You took away my next question, because I was going to ask you the expectations of the State of the Nation address, but you have spelled it out quite clearly for us.

I see competition is still a problem for your industry. You allude to unfair players in the industry. Are we talking about product-dumping here, or illegal imports? What exactly are you speaking about here, and what’s the course of action?

KOBUS VERSTER: Well, unfair trade continues to be a problem all over the world, and I think that’s why not only South Africa but other countries more aggressively apply import protection to ensure that there’s a fair playing field. I think that’s the same we expect from our authorities and government – to protect not only our local steel industries but also other sectors from unfair trade, which is very much more aggressively done by European countries, the US and others.

FIFI PETERS: Wasn’t there already protection in place – or what happened to that?

KOBUS VERSTER: No, no. There’s still a 10% [import duty] protection in place. On certain products there was an additional 8%; that was terminated in August last year.

FIFI PETERS: What’s the course of action? Terminated as in not coming back, or terminated [and] the industry is looking to see how it can get the protection back?

KOBUS VERSTER: No, I think that has lapsed and has not been renewed. So I think the focus would be to convince the decisionmakers that at least a 10% [import duty] on all steel, flat or long – for all producers in South Africa – should remain and we should be more vigilant in protecting or picking up imports that come in illegally underreported, and those types of thing. So I think control over the imports is the next phase of focus.

FIFI PETERS: All right. Lastly, I see you have a new chairman who could be coming in – possibly, if shareholders give him the thumbs-up [at the AGM in May] – in the form of Mr Bonang Mohale. Why Bonang?

KOBUS VERSTER: We’ve actually had had quite a lengthy process of succession of the board. Our current chairman [Lakshmi Mittal] will retire after nine years, which is sort of our limit, at the AGM in May. Through the process I think we’ve been interviewing people and I think we find a very energetic chairman [in Mohale] and we look forward for his contribution going forward.

FIFI PETERS: All right, Kobus. Thanks much for your time, sir. We’ll leave it there. Kobus Verster is the CEO of ArcelorMittal.

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