ArcelorMittal plans to invest in rail transport equipment and has intention to gain access to the rail network

ArcelorMittal South Africa is considering investing in rail transport equipment, Chief Executive Kobus Verster said recently, after a decline in first-half steel production partly blamed on logistics problems dampened strong earnings, according to a Reuters news release.

The South African unit of the world’s second largest steelmaker ArcelorMittal SA reported a 22% jump in first-half headline earnings to 3.025 billion rand ($180.75 million), as the group posted a second-quarter core profit (EBITDA) of $5.16 billion, topping the $5.09 billion forecast by analysts in a company-provided poll.

Higher steel prices helped offset ArcelorMittal South Africa’s lower steel production, which decreased by 30% to 1.1 million tons in a first half impacted by rail service unavailability, labour disruptions and electricity cuts. The company relies on rail to move its raw materials.

South Africa’s state-owned rail monopoly Transnet has been operating below capacity due to the shortage of locomotives as well as cable theft and vandalism, affecting the operations of firms that move bulk commodities.

Transnet transporting iron ore – one line that does work

Having maximised road transport opportunities, ArcelorMittal South Africa and Transnet Freight Rail (TFR) are collaborating on aspects of security and technical assistance.

Verster said ArcelorMittal South Africa, which lost about 600 million rand during the first half because of rail service disruptions, was considering procuring locomotives and wagons, in partnership with a third-party equipment supplier.

“As soon as we are allowed, we want to participate in rail access, either directly or through a third party, most likely a third party to solve the longer-term problem,” Verster said during a results call.

In the short term, ArcelorMittal was exploring using trucks as an alternative, he said. The company was also helping Transnet secure its network from theft and vandalism by providing drones.

In April, Transnet invited bids from private firms to operate sections of its freight network, as it seeks investment into its deteriorating infrastructure. Transnet is currently running a process to sell 16 slots, bidding for which closes at the end of August, but Transnet CEO Portia Derby has reported that third-party access will be expanded to 42 slots in 2023 and will become a permanent feature of the rail operating model.

The collapse of rail services during the six months to June 30 resulted in a 235 000 tons loss of sales and also resulted in ArcelorMittal taking the extraordinary step of implementing a month-long shutdown of one of the blast furnaces at Vanderbijlpark to avoid the risk of an uncontrolled stop due to insufficient inventory, particularly of iron-ore.

ArcelorMittal South Africa’s average capacity utilisation decreased from 59% in the first half of 2021 to 42% in 2022 and will be at 76% after the Newcastle blast furnace restoration project is completed. Crude steel production decreased by 30%, or 441 000 tons, from 1.5 million tons to 1.1 million tons in 2022. The reduction in capacity utilisation and production reflects the impact of the lower demand, and the challenges associated with rail service unavailability, labour disruptions and electricity loadshedding.

The focus on maintenance and reliability continued into 2022 with particular attention given to the coke battery restoration programme, lowering fuel rates in iron making, reducing energy consumption, improving yields in steelmaking and rolling, and increasing scrap melting, which is particularly relevant given the anticipated complete ban on the export of domestic steel scrap.

The R464 million, three-month Newcastle blast furnace restoration project will reach completion at the end of July 2022 with more than 40 000 hours worked without a single lost-time injury. The major benefits of the project include plant life extension, improvement in reliability and cost competitiveness, lower energy consumption and a reduced carbon footprint. The project created 1 030 temporary job opportunities through 28 contractor companies.

The company’s total sales volumes decreased by 8%, or 104 000 tons, to 1.2 million tons compared to the same period in 2021, due to a 10% fall in domestic sales to 1 million tons, while exports increased by 12% to 137 000 tons. The regional mix of exports weakened as Africa Overland sales fell to 81 000 tons, representing a decrease of 26%.

ArcelorMittal South Africa’s realised average steel prices increased by 30% (in rand terms), reflecting the weakened average dollar/rand exchange rate and the lagged benefit of higher steel prices, while its raw material basket increased by 41%. In absolute rand terms, coking coal increased by 91%, scrap by 8% and iron ore by 4%.