Arcelor and IDC aim to revive steel mill

ArcelorMittal SA and the Industrial Development Corporation aim to resuscitate South Africa’s only structural steel mill.

Johannesburg - ArcelorMittal SA (Amsa) and the Industrial Development Corporation (IDC) were aiming to resuscitate South Africa’s only structural steel mill which is owned by defunct Evraz Highveld Steel and Vanadium in an effort to supply local steel merchants.

Amsa, Highveld, its business practitioners and the IDC were investigating options, supplying blooms and slabs to Highveld for processing into heavy structural steel, the company said on Friday.

Highveld, South Africa’s second-biggest steel producer after Amsa, went into business rescue last year after grappling with low global prices, constrained markets and cheap imports from China.

Heavy section mill

If successful, this could result in the re-opening of the heavy section mill by the business rescue practitioner, making available the supply of heavy structural products into the South African market, the company said in its interim results.

It was anticipated that the blooms and slabs would be processed by the heavy section mill into heavy structural steel initially in terms of a one-year agreement.

There was a possibility of Amsa and the IDC having the option, to acquire the heavy section mill, after a year.

If the agreement for the supply of blooms and slabs is implemented, this should have a positive impact on Amsa’s revenue due to higher volumes.

The IDC’s spokesman, Mandla Mpangase, said South African merchants had to rely on imported products following the mill’s closure.

“The IDC and Amsa are co-operating to resuscitate the structural steel mill to supply local steel merchants. From a balance of payment standpoint, it makes sense to manufacture products locally than to rely on imports with the associated foreign exchange risks and uncertain supply,” he said.

Amsa, whose market cap declined to R9.28 billion from R11bn last year, has yet to recover from a myriad of issues including cheap imports and the lack of demand.

It reported that headline losses had widened to R458 million in the half year to June, from R109m in the first six months of last year.

While the net loss of R450m is R339m more than the net loss of R111m for the six months to June 2015.

Earnings before interest, taxes, depreciation and amortisation dropped by R359m from R641m to R282m and the loss before interest and tax decreased by R302m from a profit of R27m to a loss of R275m, primarily due to lower steel prices.

Lifeline

Amsa which has been hit by excess capacity in China had received a lifeline after the government agreed to gazette all 10 applications on import duties. Amsa acknowledges the support provided by the government to ensure a viable steel sector.

However, it said South Africa’s steel sector remained vulnerable and needed the government’s support. “Other measures such as safeguard duties, a fair pricing mechanism and further designation initiatives on construction materials are still necessary. The swift finalisation and implementation of these initiatives will go a long way to ensuring the sustainability of the South African steel sector,” it said.

Amsa shares gained 1.8 percent on Friday to R8.50.

BUSINESS REPORT