ArcelorMittal South Africa turned the corner during the year ended December 2020, returning to profitability in the second half, with positive cash flows and fixed costs falling by 33 percent. Picture: Karen Sandison/African News Agency(ANA)
ArcelorMittal South Africa turned the corner during the year ended December 2020, returning to profitability in the second half, with positive cash flows and fixed costs falling by 33 percent. Picture: Karen Sandison/African News Agency(ANA)

ArcelorMittal returns to profit during the second half of 2020

By Dineo Faku Time of article published Feb 12, 2021

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JOHANNESBURG - AFRICA’S largest steelmaker ArcelorMittal South Africa (Amsa) turned the corner during the year ended December 2020, returning to profitability in the second half, with positive cash flows and fixed costs falling by 33 percent.

Amsa made a R1.02 billion profit in the second half of 2020, resulting in a full-year earnings before interest, taxes, depreciation and amortisation profit of R37 million from a R632m loss in 2019.

Chief executive Kobus Verster said despite a difficult year in which businesses had to adjust to the impact of Covid-19 in an already weak economy, Amsa was able to return to profitability in the second half of the year, as the benefits of substantial cost reduction initiatives and the implementation of an optimised asset footprint review over the past two years are showing positive results.

“I believe the business is now well-positioned to participate in the improvements in manufacturing activity and the anticipated positive

demand spin-offs from the economic recovery plans of both the government and South African business,” said Verster.

Group operating losses narrowed to R924m during the year ended December 2020, from R2.35bn a year earlier. The headline loss decreased to R2.043bn from R3.26bn, amounting to a 186 cents per share loss against 299c loss for 2019.

Amsa reduced its fixed cash costs by 33 percent to R5.06bn in 2020 from

R7.59bn as it implemented a new operating model and completed a large scale labour reorganisation. Amsa also reported positive cash flows of R117m in 2020 from negative cash flows of R1.35bn a year earlier. Amsa said with the first half broadly characterised by lockdowns, the second half of 2020 saw an unexpected bounce in nearterm steel demand internationally.

“Virtually without exception, major steelmaking economies around the globe struggled to meet this demand in good time. Regions with integrated primary steelmaking operations were especially affected as the complex supply chain components took time to re-establish and, internationally, this restoration continues,” Verster said.

Verster also said rising international steel prices, particularly in the fourth quarter of 2020, were the consequence of global supply steel shortages due to a sharper-than-expected recovery in virtually all markets, nine-year-high iron ore prices, and increasing scrap and other raw material prices.

“By late December 2020 and into early January 2021, international steel prices reached levels last seen in 2008,” said Verster.

Amsa’s total sales volumes fell by 47 percent to 2.2 million tons compared to 2019, mainly due to a 37 percent reduction in domestic sales and a 72 percent reduction in seaborne export sales.

Flat steel products decreased by 46 percent excluding Saldanha where it declined by 27 percent, while long steel products decreased by 47 percent.

Amsa said the loss-making Saldanha Works plant would remain under care and maintenance until a sustainable input cost solution could be developed.

However, alternative value-adding and job creation options are being pursued at the West Coast plant.

“This includes the establishment of a back-of-port logistics hub using the ancillary land and infrastructure at Saldanha Works and enabling an aspirant South African independent power producer to use suitably permitted land should the party be successful in the current emergency power bidding process,” said the group.

Amsa shares closed 14.56 percent lower at R2.70 on the JSE yesterday.

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