Johannesburg - ArcelorMittal South Africa’s (Amsa) Saldanha Works plant in the Western Cape was viable owing to higher international steel prices, Africa’s biggest steelmaker said as it posted higher sales in the quarter to March.
“At this stage, and based on the current prices (and the increase in international prices), the Saldanha Works remains viable,” Amsa said on Friday.
Read: Amsa sees boost from higher steel prices
Saldanha was in the spotlight after it booked an impairment of R3.57 billion last year due to poor international steel export prices and the high local electricity tariffs in February.
The unit’s future was under review, and the company said the review had been completed. “In the long term, Saldanha Works needs alternative energy solutions, such as access to affordable electricity, which is vital to ensure its long-term sustainability,” Amsa said.
Amsa indicated that it was at an advanced stage of exploring various different options for an independent gas-to-power producer in Saldanha.
The project relied strongly on government support for importing liquefied natural gas and other regulatory approvals.
Amsa said following the recent increases in international steel prices and its subsequent steel price increases, it anticipated that overall liquidity would normalise to acceptable levels.
“Based on where prices are, the bulk of our products are cash-flow generative,” Amsa’s acting chief executive Dean Subramanian said.
“Even so, cheap Chinese supplies that are hurting steelmakers around the world will ensure market conditions remain difficult,” he added.
Amsa has been trading in murky waters and has not posted an annual profit since 2010 as a result of the flood of cheap Chinese imports at prices that are far below local production costs.
The company said it wanted the government to buy local steel, and increase both tariffs and anti-dumping duties to make its business more viable as the industry remained on its knees, with competitor Evraz Highveld Steel and Vanadium under business rescue and about 2 000 employees retrenched, while Scaw Metals has also shed about 1 000 jobs.
“While progress has been made, it is still the case that without the requisite safeguards as applied for, and without the initiatives committed by the government regarding the use of local steel for government infrastructure projects, the steel industry and the company remain vulnerable,” Amsa said. They “will need to undertake significant structural change should international prices remain volatile on the back of cheap Chinese steel being dumped globally”.
Amsa’s total steel sales volumes rose 3.1 percent to 1.1 million tons in the first quarter from a year earlier.
However, production fell 9 percent in the quarter to March amid a combination of operational issues and the tough operating environment.
Liquid steel production was 122 000 tons, and 9 percent lower compared with the same quarter last year.
Liquid steel production was hit in the latter part of the December quarter last year when only one blast furnace was operational in Vanderbijlpark.
“The subsequent restart and ramp-up of the blast furnace during January... compounded by negative market conditions, operational requirements and the closure of the Vaal Melt Shop at the end of 2015 contributed to the lower production,” Amsa said.
Shares dropped 1.67 percent on Friday to close at R8.85.
BUSINESS REPORT