ArcelorMittal South Africa reported widening losses after grappling with slow demand during the first half of 2020. Photo: African News Agency (ANA) Archives
ArcelorMittal South Africa reported widening losses after grappling with slow demand during the first half of 2020. Photo: African News Agency (ANA) Archives

Hard-hit ArcelorMittal faces power price hike amid reported widening losses

By Dineo Faku Time of article published Jul 31, 2020

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JOHANNESBURG - ArcelorMittal South Africa (Amsa) yesterday reported widening losses after grappling with slow demand during the first half of 2020 and warned that its costs would jump by R300million, because of higher electricity prices following the court ruling in Eskom’s favour in its dispute with the energy regulator.

Eskom will be allowed to implement significant electricity tariff increases next year.

Weakened steel demand because of the Covid-19 pandemic resulted in headline losses widening to R2.61billion from an R638m loss a year earlier. This amounted to a R2.39 loss per share against a 58 cent loss in the first half of 2019.

Earnings before interest, taxation, depreciation and amortisation (Ebitda) fell from a profit of R167m in June last year to a R1.25bn loss.

However, the company managed to reduce costs by 38percent, or R1.6bn.

Amsa chief executive Kobus Verster told journalists on the sidelines of the company’s results presentation for the six months ended June yesterday that the court decision would have a direct impact on its cost base.

“We are already paying far too much. The Eskom tariff was a major contributor to the closure of Saldanha Steel.

“We will now add another 10percent on our current electricity bill. In addition to this, the cost of load shedding is a substantial interruption we have to deal with.

“I would guess that the direct impact on our electricity bill will be between R250m and R300m in increased costs,” Verster said.

The court on Wednesday reviewed and set aside the National Energy Regulator of South Africa’s (Nersa) decision on Eskom’s fourth multi-year price determination (MYPD4) for the 2019/20, 2020/21 and 2021/22 financial years.

The judgment requires Eskom to recover the R69bn, in a phased manner, over a period of three years.

Ian Cruickshanks, chief economist at the Centre for Risk Analysis, said that demand for steel and mining products had retracted, which made the environment difficult, despite the company’s progress in reducing costs.

“They can reduce costs, but their cash needs are growing at the same time. That means less throughput of production.

“Until there is a global upturn in demand it will remain in the doldrums,” said Cruickshanks, citing that the South African economy was struggling.

“Look at our own economy, there is no consumer demand, no business demand. If there is no demand for business expansion, what are the prospects for Amsa to pick up?” he asked.

Due to faltering demand, the group decided to idle the Blast Furnace C and the Vereeniging Electric Arc Furnace until demand recovered.

In June, Amsa announced a large-scale labour reorganisation in terms of Section 189 of the Labour Relations Act as it anticipated that steel demand would, for the foreseeable future, remain at between 70 to 75percent of levels planned before the lockdown.

Verster said that while the company was extremely conscious of the serious unemployment situation facing the country, it had to find ways to secure significant cost savings.

“Our objective is to reduce 30percent of fixed costs. We have proposed that instead of a blanket reduction in the number of people, let us explore insourcing, salary reductions.

“Let us explore flexible working hours and alternative shift hours. A combination of these things will reduce the number of people impacted,” said Verster.

Amsa shares closed 26.47percent lower at R0.25 on the JSE yesterday.

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