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ArcelorMittal SA facing challenging 2013

Source: Steel Guru Date: 10 May 2013

ArcellorMittal SA will on Friday release its first-quarter results in what appears to have been another challenging quarter for South Africa’s biggest steel producer, following a fire at its Vanderbijlpark facility earlier this year that damaged steel making facilities.

The company, which recorded a headline loss of ZAR 518 million in the year to December last year, is grappling with the global economic slowdown, which has sapped demand for its steel products, and with operational issues. Repairs to the damaged sites have been completed but the overall cost implications of the fire are yet to be finally determined. ArcelorMittal SA, which has had about ZAR 19 billion wiped off its market capitalization since the start of last year, is also in a dispute over its 2001 iron ore supply contract with Kumba.

Mr Warrick Robertson, Coface senior risk analyst, said that the South African steel industry had been under pressure in the recent past and the future was unlikely to offer any relief.

Mr Robertson said that the production of steel in South Africa had been inconsistent, largely due to technical problems caused by outdated and uncompetitive production facilities.

He said that the big margins steel producers achieved at the time spurred many manufacturers to increase their capacity, which, since the collapse of international markets and the onset of the eurozone crisis, had never been met by real demand.

He added that “The short term is expected to remain challenging due to a lack of demand from the construction sector, traditionally the primary driver behind steel demand. Improvement in demand is expected in the fourth quarter of this year as, traditionally, government spending increases prior to elections.”

He further added that “We have also noticed a slowdown in liquidations within the industry this year suggesting only the resilient players with strong balance sheets remain and should be able to weather the bad conditions until such time as conditions improve.”

ArcellorMittal SA will on Friday release its first-quarter results in what appears to have been another challenging quarter for South Africa’s biggest steel producer, following a fire at its Vanderbijlpark facility earlier this year that damaged steel making facilities.

The company, which recorded a headline loss of ZAR 518 million in the year to December last year, is grappling with the global economic slowdown, which has sapped demand for its steel products, and with operational issues. Repairs to the damaged sites have been completed but the overall cost implications of the fire are yet to be finally determined. ArcelorMittal SA, which has had about ZAR 19 billion wiped off its market capitalization since the start of last year, is also in a dispute over its 2001 iron ore supply contract with Kumba.

Mr Warrick Robertson, Coface senior risk analyst, said that the South African steel industry had been under pressure in the recent past and the future was unlikely to offer any relief.

Mr Robertson said that the production of steel in South Africa had been inconsistent, largely due to technical problems caused by outdated and uncompetitive production facilities.

He said that the big margins steel producers achieved at the time spurred many manufacturers to increase their capacity, which, since the collapse of international markets and the onset of the eurozone crisis, had never been met by real demand.

He added that “The short term is expected to remain challenging due to a lack of demand from the construction sector, traditionally the primary driver behind steel demand. Improvement in demand is expected in the fourth quarter of this year as, traditionally, government spending increases prior to elections.”

He further added that “We have also noticed a slowdown in liquidations within the industry this year suggesting only the resilient players with strong balance sheets remain and should be able to weather the bad conditions until such time as conditions improve.”

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