With current steel demand in South Africa almost at a 10-year low, steelmaker ArcelorMittal South Africa is looking for export opportunities in the rest of Africa.
“In light of weak domestic demand, ArcelorMittal South Africa (AMSA) has implemented a strategy to enhance its short-term profitability and cashflow, thereby, ensuring the business’ sustainability and positioning it to exploit growth in the sub-Saharan Africa region,” said CEO Kobus Verster in recent newspaper reports.
During a recent media tour of its Vanderbijlpark facilities he noted that most steel companies required strong domestic demand to ensure profitability, underpinned by a “reasonable” economic growth rate of about 1.8% to 2%.
The foray into new markets was among steps the company was taking to improve financial and operational performance. These included restarting the Vaal Meltshop plant in Vereeniging.
Verster pointed out that it had received financial assistance from its shareholders, as well as support from government in the form of increased import duties and other safeguards aimed at protecting the steel industry.
“However, from a business perspective, we still have to work on our cost-base; it’s naive to think that you can come from seven years of losses and think that you can make a profit.”
The company’s “structured” cost reduction included lowering costs by $50 a ton, which would improve the company’s sustainability.
Additionally, AMSA is working to increase its volumes. The company is in the process of restarting its Vereeniging melt shop, which will produce 150 000 t/y, and assist Newcastle in its sustainability process, by removing a lot of “complexity and cost” from the Newcastle business.
The facility is expected to reopen in January 2019 and provide in excess of 100 jobs. AMSA is working towards a combined increase of up to 700 000 tons from the Vanderbijlpark, Saldanha Bay and Newcastle plants, by debottlenecking the current asset base.
In August, the company said it was evaluating the building of a new arc furnace at the Vanderbijlpark mill, with a capacity of 700,000 tons to 1 million tons a year. Verster said the facility would stimulate employment and procurement benefits for the Vaal area.
Additionally, Vanderbijlpark is also, over the next 18 months, investing in its downstream product capacity and diversity, improving service and expanding the product base.
“Once you have reduced your cost to an acceptable level, you can actually push volumes, because you can export it. Once you start selling and producing more, you further reduce costs and improve profitability.”
AMSA is, meanwhile, considering opportunities to supply downstream companies in the Southern African Development Community, as well as in East and West Africa.
The low steel demand was in contrast to the improvement in international steel demand in the past two years.
“China has become much more responsible in its supply. Internationally, we are around 80% of global steel capacity utilisation. That has resulted in much better prices. In the past two years, steel companies in Europe, US, Canada, China and South America are making good money,” Verster said.
Commenting on US tariffs on imported steel and aluminium, he said the company’s exposure to the US market was minimal. But there could be a risk of countries now exporting to the US diverting their material to ArcelorMittal’s traditional export markets, especially east Africa.
“We have not seen that yet,” he said.