Africa’s largest steel producer, ArcelorMittal SA, is gearing up for deep cuts, including jobs, as it warns of a fall in demand for its products.
The company, which has had operational woes stemming from weak prices and falling demand compounded by the pandemic, will slash fixed costs by a further 30%. This would imply almost R800m in cuts after it brought down its expenses by 38%, or R1.6bn, in the six months to end-June to R2.6bn.
The move would bring the company’s expenses, which include labour, to R1.8bn and ensure it matches the size of the market it serves.
A survey of its customers suggests a domestic market size reduction of about 27% in 2020 as consumers in industries from construction to vehicle hunker down for a prolonged economic downturn.
ArcelorMittal SA has been on a punishing cost-cutting drive since 2018, including having let go of about 1,000 workers and mothballing its Saldanha plant. In the six months to end June it reduced fixed costs by 38% to just over R2.6bn.
CEO Kobus Verster said on Thursday the group could not give a number in terms of job cuts, which would ultimately be dependent on talks with labour. The group has tabled proposals including salary sacrifices and changes to work patterns.
“While we are extremely conscious of the serious unemployment situation facing the country, we must find ways to secure significant cost savings if the business is going to survive,” said Verster.
As of the end of December, the group had just more than 8,300 permanent employees.
Verster said on Thursday if the group had not been on a cost-reduction drive before the pandemic hit, “it is highly unlikely [it] would have been strong enough to navigate this unprecedented period”.
A weaker rand and electricity disruptions also took their toll, with the group reporting a foreign exchange rate loss of R977m for the period, from a profit of R93m previously.
Electricity disruptions, as well as rail disruptions due to cable theft, cost the group R272m in lost earnings.
“These events and the consequential stop-start shocks are beginning to materially affect the reliability of plant and equipment,” the group said.
ArcelorMittal SA's share closed 26.47% lower at 25c, extending a 15% loss on Wednesday, when it released a trading update.
The group's share has fallen almost 79% so far in 2020, giving it a market capitalisation of R285m.
The group reported a headline loss of R2.6bn, from a loss of R638m previously. Liquid steel production fell 54% to 1.1-million tonnes and sales by 47%.
“After an already demanding 2019, the first half of 2020 proved to be an incredibly difficult and extraordinary period, the likes of which have never been witnessed in terms of the widespread social and business impact as wrought by the global Covid-19 pandemic,” the group said.
With Tiisetso Motsoeneng
Update: July 30 2020
This article has been updated with information throughout.
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