Johannesburg - Arcelormittal South Africa (Amsa), Africa’s biggest steel maker, on Friday announced that it was taking steps to cut costs, including conducting a review of its long steel business after posting lower than expected production figures for March.
Amsa said the stronger rand against the US dollar, higher coal prices, the continuing surge of imports and operational problems had hit its production and had necessitated the implementation of cost cutting measures.
“In order to mitigate some of the negative impact, further cost cutting and efficiency measures are being implemented.
This will also include a review of the long steel business in light of the price of scrap in relation to the raw material basket,” the company said.
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Amsa said it expected the impact of the safeguards on hot rolled coil steel signed off by Trade and Industry Minister Rob Davies last week to be felt on July 1.
“This will provide a benefit in terms of sales volumes and the ability to consistently achieve the basket price,” the company said.
Amsa said that the 10percent steel tariff that was introduced last year was not enough as its local sales for March had declined by 3.4percent, mainly due to weaker local demand for long products, owing to high stock levels at the merchants and strong competition in the local market.
Long product sales were down 27.7percent, while flat product sales increased by 10.7percent, the company said.
“Although having declined slightly from 2016 levels (257000 tons in the first quarter of 2017 versus 310000 tons in the first quarter of 2016), imports are still high, despite the 10percent duties having been imposed,” the company said.
Amsa expected continued pressure for local sales, mainly as a result of lower steel demand due to poor economic activity and ongoing imports, it said.
Wade Napier, an investment analyst at Cape Town based Avior Capital Markets, said the big disappointed for Amsa was that they were yet to benefit from the implementation of steel tariffs last April.
“In the first quarter steel imports were down 17percent. However, Amsa reported lower domestic sales. It begs the question who is the industry buying from or is the demand low?”
In terms of March production Amsa reported a 44.2percent decline in commercial coke sales to 38000 tons, and that it was repairing two coke batteries which lowered the amount of coke that was available for blast furnace production.
As a result Amsa was importing metallurgical coke in order to supplement shortfalls during the repair process.
Amsa also reported a 2.3percent drop in liquid steel production to 28000 tons due to lower Vanderbijlpark productionr.
It said that this had been partly offset by higher production at its Saldanha operation, and at the Newcastle plant production was lower mainly due to import coke and iron ore quality.
The domestic steel industry has been loss making as it grappled with cheap Chinese imports that have resulted in Amsa’s rival Evraz Highveld Steel and Vanadium filing for business rescue and Scaw Metals restructuring its operations.