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Evraz Highveld looks to ramp up exports on poor SA outlook, surge in imports

Source: Engineering News Date: 12 November 2010

South Africa’s second-largest steel producer Evraz Highveld expects weak domestic demand for steel to continue until the second half of 2011 and warns that this, together with a stronger rand, will mean that the financial position of the company is unlikely to improve in the near term.

It also reports that, while its export sales for the nine months to September 30, 2010, slumped by 36%, it would now seek to ramp up exports again, owing primarily to the subdued domestic outlook.

But CEO Scott MacDonald tells Engineering News Online that the local industry is also having to contend with a surge in steel imports, which could have negative long-term consequences for the industry and for Evraz Highveld.

In the long-products segment, imports currently comprised about 49% of the market, up from the traditional average of 16% and a level of 5% recorded in 2006. Imports of 105 000 t have been recorded for the year so far.

There has also been a strong rise in flat-product imports, with 73 000 t having flowed into South Africa between January and September, as compared with 50 000 t in 2006. Plate imports, meanwhile, have reached 28 000 t, a big climb from the 9 000 t experienced in 2006.

MacDonald attributed the surge to a combination of the stronger rand, surplus stocks, particularly in Asia, and the fact that South Africa had no duties in place on primary steel imports.

But while he is concerned about the phenomenon, he said that the company had no plans to make representations to government on the issue. Instead it would seek to improve its efficiencies, as well as pursue new outlets, through the bigger Evraz group, for its products in other African and international markets.

SOLID VANADIUM OUTLOOK

Evraz senior vice-president and head of international business Pavel Tatyanin stressed that there was also no intention to cut steel output in 2011, owing primarily to the fact that the South African facility’s steel production remained tied to vanadium production, where the outlook was improving.

In fact, he said that the appetite globally for vanadium was strengthening, which was being reflected in the current price contract negotiations. This demand was broad-based, but there was also fresh demand from South America, where there were moves to use vanadium-based steels to strengthen infrastructure in a way that improved its resilience to earthquakes.

Tatyanin told Engineering News Online that, while it was disappointed that South Africa’s infrastructure demand had failed to materialise as forecast, the focus at Evraz Highveld would be on preparing itself operationally for that demand, which would eventually arise.

This focus included finally securing the conversion of its mineral rights at the Mapochs mine, which supplies ore for the production of both steel and vanadium - it currently produces at a yearly run-of-mine rate of 2,2-million tons.

Expansion plans were still being interrogated for the mine, which could eventually lead to the export of ore to foreign consumers. But this would hinge on rights security, third-party demand for what is a ‘complex ore’ and infrastructure capacity. Evraz Highveld was already in early-stage talks with Transnet on possible rail and port options.

The group was continuing with capital expenditure programmes of around R300-million a year, which could be ramped-up further should new furnace upgrades and energy projects be approved in the coming months. MacDonald revealed that the company was currently studying its cogeneration options and that full visibility of these waste gas to electricity options should be forthcoming during the course of 2011.

The JSE-listed steel group, which is majority owned by Evraz of Russia, reported a R313-million third-quarter loss and a modest R113-million profit for the nine months to September 30, 2010. This, despite the fact that third quarter output rose 21% when compared with the prior quarter, while output for the nine-month period was 18% better than the same period in 2009.

The improved volumes were partly attributed to a repair work complete by the plant’s oxygen supplier, which stabilised the oxygen supply - instability had been a major factor in operational underperformance in prior quarters of 2010 and Evraz Highveld was still weighing its legal options in this regard.

Nevertheless, Evraz Highveld, which also produces vanadium slag and vanadium pentoxide, reported a R58-million operating loss in the third quarter, and a cumulative operating loss to September 30 of R313-million.

South Africa’s second-largest steel producer Evraz Highveld expects weak domestic demand for steel to continue until the second half of 2011 and warns that this, together with a stronger rand, will mean that the financial position of the company is unlikely to improve in the near term.

It also reports that, while its export sales for the nine months to September 30, 2010, slumped by 36%, it would now seek to ramp up exports again, owing primarily to the subdued domestic outlook.

But CEO Scott MacDonald tells Engineering News Online that the local industry is also having to contend with a surge in steel imports, which could have negative long-term consequences for the industry and for Evraz Highveld.

In the long-products segment, imports currently comprised about 49% of the market, up from the traditional average of 16% and a level of 5% recorded in 2006. Imports of 105 000 t have been recorded for the year so far.

There has also been a strong rise in flat-product imports, with 73 000 t having flowed into South Africa between January and September, as compared with 50 000 t in 2006. Plate imports, meanwhile, have reached 28 000 t, a big climb from the 9 000 t experienced in 2006.

MacDonald attributed the surge to a combination of the stronger rand, surplus stocks, particularly in Asia, and the fact that South Africa had no duties in place on primary steel imports.

But while he is concerned about the phenomenon, he said that the company had no plans to make representations to government on the issue. Instead it would seek to improve its efficiencies, as well as pursue new outlets, through the bigger Evraz group, for its products in other African and international markets.

SOLID VANADIUM OUTLOOK

Evraz senior vice-president and head of international business Pavel Tatyanin stressed that there was also no intention to cut steel output in 2011, owing primarily to the fact that the South African facility’s steel production remained tied to vanadium production, where the outlook was improving.

In fact, he said that the appetite globally for vanadium was strengthening, which was being reflected in the current price contract negotiations. This demand was broad-based, but there was also fresh demand from South America, where there were moves to use vanadium-based steels to strengthen infrastructure in a way that improved its resilience to earthquakes.

Tatyanin told Engineering News Online that, while it was disappointed that South Africa’s infrastructure demand had failed to materialise as forecast, the focus at Evraz Highveld would be on preparing itself operationally for that demand, which would eventually arise.

This focus included finally securing the conversion of its mineral rights at the Mapochs mine, which supplies ore for the production of both steel and vanadium - it currently produces at a yearly run-of-mine rate of 2,2-million tons.

Expansion plans were still being interrogated for the mine, which could eventually lead to the export of ore to foreign consumers. But this would hinge on rights security, third-party demand for what is a ‘complex ore’ and infrastructure capacity. Evraz Highveld was already in early-stage talks with Transnet on possible rail and port options.

The group was continuing with capital expenditure programmes of around R300-million a year, which could be ramped-up further should new furnace upgrades and energy projects be approved in the coming months. MacDonald revealed that the company was currently studying its cogeneration options and that full visibility of these waste gas to electricity options should be forthcoming during the course of 2011.

The JSE-listed steel group, which is majority owned by Evraz of Russia, reported a R313-million third-quarter loss and a modest R113-million profit for the nine months to September 30, 2010. This, despite the fact that third quarter output rose 21% when compared with the prior quarter, while output for the nine-month period was 18% better than the same period in 2009.

The improved volumes were partly attributed to a repair work complete by the plant’s oxygen supplier, which stabilised the oxygen supply - instability had been a major factor in operational underperformance in prior quarters of 2010 and Evraz Highveld was still weighing its legal options in this regard.

Nevertheless, Evraz Highveld, which also produces vanadium slag and vanadium pentoxide, reported a R58-million operating loss in the third quarter, and a cumulative operating loss to September 30 of R313-million.

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