ArcelorMittal SA: Struggling Amidst Steel Market Slum

  • ArcelorMittal South Africa faces challenging market conditions in H1 2023.
  • Financial indicators show significant declines, with an 86% decrease in EBITDA and a headline loss of R448 million.
  • The company plans to modify its 2016 B-BBEE transaction to enhance value creation and promote economic empowerment.

ArcelorMittal South Africa has faced significant challenges in the first half of 2023 as it grapples with a weaker trading environment, substantially lower international market prices, and stagnant economic growth. The company’s financial results have painted a difficult picture, with key indicators showing significant declines compared to the same period last year.

Financial Struggles

ArcelorMittal South Africa reported a steep 86% decrease in EBITDA, which dropped to R499 million during the first six months of 2023, compared to R3,591 million in the same period in 2022. Operating profit also experienced a substantial decline, falling from R3,235 million to a meager R94 million. The headline loss amounted to R448 million, presenting a stark contrast to the profit of R3,025 million recorded in the first half of 2022.

Revenue also suffered, decreasing by 5% to R21,045 million from R22,176 million in the first half of 2022. This decline was attributed to an 8% fall in net realized steel prices, despite a 3% increase in total steel sales volumes. The company’s sales volumes showed a modest 3% increase, with crude steel production rising by an impressive 29% to 1.36 million tonnes.

Raw Materials and Production Challenges

ArcelorMittal South Africa’s raw material costs rose by 2% in rand terms, with imported coking coal seeing a 1% increase, while iron ore increased by 4%, and scrap decreased by 5%. However, commercial coke production and sales volumes were heavily impacted by the ongoing restoration of coke batteries, resulting in an 83% decrease in sales volumes.

Net Borrowings and Capital Expenditure

The company’s net borrowings position increased to R2,990 million at the end of June 2023, compared to R2,808 million at the end of December 2022. The higher net borrowings were due to cash generated from operations being offset by capital expenditures, finance costs, and taxes. To improve its financial position, ArcelorMittal South Africa is focused on measures to optimize its net borrowing position in the current challenging steel trading environment.

Proposed Modification of B-BBEE Transaction

In a bid to improve prospects for sustainable value creation and realization, ArcelorMittal South Africa has proposed a modification to its 2016 Broad-Based Black Economic Empowerment (B-BBEE) transaction. The existing B-BBEE transaction introduced black ownership through various components but failed to deliver the expected value for empowerment partners, employees, and the company. The proposed modification seeks to enhance the B-BBEE ownership for all stakeholders, in line with the company’s commitment to promoting transformation and economic empowerment.

Outlook and Challenges Ahead

Looking ahead to the second half of 2023, ArcelorMittal South Africa’s outlook remains uncertain due to the persistently weaker trading conditions, particularly in the domestic market. The company faces various challenges, including electricity load shedding, high inflation, and interest rates, which have negatively impacted consumer confidence and overall steel demand. Despite these headwinds, the company remains optimistic about its medium to long-term prospects, with hopes that renewables and regional infrastructure projects will support steel demand in the future.

Safety and Sustainability Focus

ArcelorMittal South Africa maintains its commitment to prioritizing safety as its highest concern. The company remains focused on sustainable operations and transformational goals, working to promote economic empowerment in the region.

While the immediate trading environment poses significant challenges, ArcelorMittal South Africa is determined to navigate these tough market conditions while staying true to its long-term objectives. The company continues to work towards addressing the current economic challenges and positioning itself for growth and resilience in the future.

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