Ailing steel producer ArcelorMittal South Africa said yesterday its strongest annual results since 2008 were buoyed by soaring steel prices, and after cutting its debt by two-thirds.
For the year ended December 31, headline earnings of R6.86 billion recovered from a loss of R2.033bn the prior year, while headline earnings per share were R6.15 against headline loss per share of R1.85 for 2020.
Revenue increased by 61 percent to R39.7bn due to a 13 percent rise in total steel sales volumes and a 47 percent increase in net-realised steel sales prices.
Ebitda (earnings before interest, taxes, depreciation, and amortisation) of R8.57bn compared with only R37m in the previous period, while operating profit increased substantially from a loss of R963m in 2020 to a profit of R7.98bn.
The company’s input costs increased by 10 percent. The raw material basket is made up of iron ore, coking coal, and scrap, which make up 43 percent of the cash cost per tonne.
The company said the GDP growth forecast for South Africa was around 4.6 percent for 2021, and for near- and Sub-Saharan Africa markets was between 3 percent and 3.3 percent.
“Steel inventory levels have largely returned to normal while business conditions in South Africa, particularly in the second half of 2021, proved to be more challenging than initially anticipated. This was due to the negative impact on the sentiment of events such as the civil unrest in July, labour disputes in the downstream sector, continuing electricity load-shedding, municipal distribution network failures, and lockdown uncertainty,” the company said.
ArcelorMittal chief executive Kobus Verster said the outlook for global steel demand remained generally positive, heading into 2022. “In SA and neighbouring countries, it is likely that demand will ease back to more moderate growth levels.
“Due to a combination of supply-side constraints and interventions, along with the sporadic demand momentum, especially in developing economies, international steel prices are off the highs of 2021, although prices continue to receive support from robust raw material prices,” he said.
The group, which was the world’s largest steel company, lost its top spot to China’s Baowu in 2020, after the pandemic caused the global economy to sink. Last year, when economies emerged from the Covid-19 pandemic, the demand for raw materials and commodities increased causing prices to jump.
The company said it also made progress from the second half of 2021 to develop options for a material reduction in carbon intensity by 2030, and net-zero by 2050.
“Numerous bankable ‘no-regret’ opportunities have been identified, central of which is energy efficiency improvement, both of a non-capital and capital-intensive nature. Of critical importance is the establishment and adoption of an international carbon price, supportive policies, and enabling funding solutions,” the company said.
Cratos Asset Management portfolio manager Ron Klipin said the company performed well, and a number of its corporate actions it has implemented in a couple of years has paid off, with free cash generation of R19.62bn, resulting in a reduction in net borrowing by R2.37bn, thereby reducing gearing to more acceptable levels.
ArcelorMittal’s share price was down 7 percent to R9.29 in early trade on the JSE, and Kiplin said this might be due to the market being weak on Thursday.
“I thought they delivered very solid results. The company is turning around. In terms of the balance sheet, it’s a good set of solid results in changing circumstances as the steel demand is increasing, and manufacturing revenue is strong. I think we are going to see firm prices continue for steel because of macro demand,” he said.
BUSINESS REPORT ONLINE