ArcelorMittal South Africa Faces Losses: H1 2024 Performance Declines

  • ArcelorMittal South Africa faces challenges in a stagnant global steel market.
  • China's high steel exports and weak domestic demand impact international markets.
  • The company defers wind-down of its Longs Business to explore sustainability measures.

ArcelorMittal South Africa has provided a business update and trading statement for the first half of 2024.

Global Market Overview

The World Bank expects global growth to stabilize at 2.6% in 2024. This marks the first steady growth rate in three years. However, the Worldsteel Association forecasts that apparent steel use in 2024 will increase by 1.7%, reaching 1.8 billion tonnes.

Global steel production was flat for the first five months of 2024 compared to 2023.

China’s Steel Market

China’s domestic steel consumption is expected to remain weak in 2024. This is due to an ongoing property crisis and weaker infrastructure demand. In 2023, China’s steel exports reached 94 million tonnes, the highest level since 2015/16. For the first five months of 2024, China’s steel exports increased by 15% compared to the same period in 2023. Exports in 2024 are anticipated to exceed 100 million tonnes.

International Trade Remedies

Several countries have implemented trade remedies and non-tariff barriers to counter China’s high levels of steel exports:

  • Mexico: Near-80% tariff on imports from China.
  • Brazil: 25% tariff matching that of the USA on China.
  • Others: Europe, India, Vietnam, and Thailand have taken similar actions.

Price Trends

Chinese export prices for hot rolled coil and rebar fell by 10% in US dollar terms in H1 2024 compared to H1 2023. Meanwhile, the Raw Material Basket (RMB) only decreased by around 4%.

The spread between China hot rolled coil and international RMB reached a low of $64 per tonne in Q4 2023. It improved to above $100 per tonne in H1 2024, but remained at unsustainable levels.

South African Market Conditions

South African economic activity remained largely stagnant in Q1 2024. This was influenced by the uncertainty surrounding national elections. Primary steel exports from South Africa increased by 13%, reflecting a 14% increase in crude steel production.

Sustainability and Growth

Despite weak market conditions, some positive trends have emerged within South Africa’s manufacturing sector. Manufacturing production increased by 5.3% year-on-year in April and 5.2% month-on-month compared to March. This marks the largest monthly increase since August 2021.

The absence of load-shedding, if sustainable, should further contribute to this improvement. The manufacturing growth forecast for 2024 is +1.1% year-on-year.

Energy Sector Developments

South Africa has become the third-largest recipient of cleantech foreign direct investment (FDI) funds into Africa. Solar rooftop photovoltaic (PV) capacity increased from 985MW in March 2022 to 4,400MW by June 2023.

Large-scale energy projects worth R100 billion, totaling 6,000MW, have been registered with the National Energy Regulator.

Logistics and Infrastructure

The National Logistics Crisis Committee and the Freight Logistics Roadmap aim to stabilize freight rail operations. Transnet plans to invest R160 billion to address national infrastructure needs. This includes deepening and lengthening two berths at Durban Container Terminal Pier 2.

The Draft Rail Private Sector Participation Framework will enable private sector participation in the freight rail network. This encourages partnerships between Transnet, private rail operators, automotive OEMs, mining companies, and freight operators.

Deferral of Longs Business Wind Down

In February 2024, ArcelorMittal South Africa deferred the wind-down of its Longs steel product operations. The business will continue to operate for up to six months to secure short-term interventions and develop medium- and long-term sustainability measures.

Progress on Short-term Initiatives

  1. Scrap Advantage: The export ban on steel scrap was not extended in December 2023, improving input cost structures.
  2. Port and Rail Efficiency: Transnet performance has improved, and negotiations for guaranteed service efficiency are at an advanced stage.
  3. Trade Normalization: A provisional safeguard duty of 9% on certain hot rolled steel products is expected from ITAC. Applications for other steel products, including long products, are being pursued.
  4. Working Capital: An additional 12-month secured working capital facility of R1 billion has been obtained.
  5. Labor Discussions: Efforts to reduce the cost structure through negotiations with organized labor were unsuccessful.

Medium- and Long-term Initiatives

Efforts are ongoing to advance local mineral beneficiation policies and local supply for regional demand. The focus is on ensuring the sustainability of the Longs Business and mitigating the impact on jobs and the local economy.

Trading Statement

ArcelorMittal South Africa expects significant declines in earnings for H1 2024 compared to H1 2023.

MetricH1 2023H1 2024 (Expected)
Earnings per share (EPS)-R0.32-R1.04 to -R1.10
Headline earnings per share-R0.40-R0.96 to -R1.04

The financial results for the six months ended 30 June 2024 will be released on 1 August 2024. A virtual presentation will be available on the company’s website.

Conclusion

ArcelorMittal South Africa continues to navigate challenging market conditions and operational hurdles. The company is committed to sustainable growth and stability in the regional steel market. The next financial update will provide more insights into the company’s performance and outlook.


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