CAPE TOWN - Struggling steel-maker ArcelorMittal South Africa said yesterday that it might close loss-making plants and production areas following a review.
This was after it plunged into a R222million operating loss in the six months to June compared with a R1.22m operating profit a year earlier. The biggest steel-maker in Africa has operations in Vanderbijlpark, Vereeniging, Saldanha and Newcastle.
The plan to restore the group to financial health was welcomed by the market, with ArcelorMittal’s share price up by 5.02percent to close at R2.30 on the JSE yesterday afternoon.
“Such decisions would be taken as a result of the affected business areas being no longer financially viable,” a statement from the group said.
Steel producers globally have this year struggled with lower selling prices due to overcapacity and a slower world economy that has slowed demand, as well as high iron ore prices.
Chief executive Kobus Verster also expressed concern in June that electricity, port and rail tariff price hikes, which had added R168m to costs in the six-month period, had already made the group uncompetitive internationally.
ArcelorMittal is already consulting employees and trade unions, labour processes that were expected to be finalised in the fourth quarter of 2019. Trade union Numsa has previously warned that more than 2000 of about 7800 employees in ArcelorMittal might be affected with retrenchment.
“The board has extended its planned strategic evaluation process to incorporate a review of the operational and financial sustainability of certain of its major operating sites, individual plants and production areas, although excluding its commercial market coke operations, nor impacting the planned acquisition of the Highveld Structural Mill.”
The plants, operating sites and production areas that had historically had a negative impact on the financial results would be reviewed for long-term sustainability, the management said.
Factors that had made these sites vulnerable included the long period of economic weakness in South Africa, structural disadvantages, and an increasingly uncompetitive cost base, which was notably manifest in “unaffordable regulated tariffs and raw material prices,” ArcelorMittal’s management said.
Global steel production increased 1.7percent year-on-year in July to 156.6million tons, but South African steel production - ArcelorMittal produces about 60percent of South African steel - fell 13.2percent to 464000 tons in the month, an online search showed.