ArcelorMittal South Africa (Amsa) yesterday reported its earnings for the full year ended December 2022 dropped 62% due to higher input costs, load shedding and Transnet's rail network challenges.
In its group financial results for the six months ended December 31, 2022, the largest steel producer said headline earnings dropped by 62% to R2.6 billion.
Amsa said crude steel production decreased by 20%, or 618 000 tonnes, from 3.0 million in 2021 tonnes to 2.4 million tonnes in 2022.
The group said, globally, steel prices had declined at a faster rate than raw materials as particularly evident in the second half of the year.
"This has led to negative price-cost effects with spreads (i.e., the difference between steel prices and raw material costs) under significant pressure.
Amsa said it could not escape the impact of the year’s energy crunch, as seen in the extreme increase in the international price of coking coal, up 62% year-on-year in dollar terms.
"Domestically, market conditions proved to be especially challenging as customers destocked. This was particularly notable in the last quarter of the year, where market activity dissipated dramatically in certain sectors (being somewhat reminiscent of late-2008)," it said.
The group said the year started with plant closures due to the primary impact of rail disruptions, and the year ended with the secondary impact of such disruptions affecting sales deliveries.
“Daily briefings to the CEOs of ArcelorMittal South Africa and Transnet Freight Rail (TFR) has seen notable benefits, however, overall performance remains well below service design. While doing its best to support TFR and Transnet Port Terminals (TPT), the company has completed a pre-feasibility study with its specialist rail operator advisor into the commercial viability of third-party rail access. It has been agreed to progress to the definitive feasibility study stage, which includes funding solutions,” the group said.
Crude steel production increased by 29% to 1.35 million tonnes compared to 1.05 million tonnes in the immediately preceding six months.
The group said profit decreased by 60.2% year on year to R2.64bn, and profit from operations amounted to R3.5bn despite revenue edging up as sales volumes declined.
Revenue increased by 3% to R40.8bn due to a 17% rise in net realised steel sales prices, despite a 13% decrease in total steel sales volumes.
“Revenue decreased by 16% to R18 596mn compared to R22 175mn in the immediately preceding six months," it said.
The group said average capacity utilisation decreased from 60% in 2021 to 47% in 2022.
"The reduction in capacity utilisation reflects, in addition to the 12% reduction in apparent steel demand, the impact of the delivery complexities associated with rail service unavailability, labour disruptions, and electricity load shedding, which characterised the South African operating environment in 2022. Current capacity utilisation was 79%, it said.
Amsa CEO Kobus Verster said: “The trading environment for steel has been significantly impacted by recent economic headwinds, both globally and locally.
“However, our business has responded effectively as a consequence of our evolving Value Plan, together with the support of our committed employees, customers, and suppliers. Despite the sharp weakness which characterised the second half of last year, our financial results are significantly stronger than they would otherwise have been.”
Looking ahead, Verster said, as it did in 2022, the company would react swiftly and decisively to the difficult market conditions.
“Amsa will increase volumes through targeting import replacement and Africa overland volumes, adopt a flexible approach to operating plants in reaction to the available order book, adjusting fixed-cost levels accordingly, and following an assertive cash management process,” he said.
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