Sub-Saharan Africa’s largest steelmaker, ArcelorMittal SA (Amsa), told shareholders it would report wider losses than previously anticipated as it prepares to wind down its long-steel business to focus on its flat-steel plate production.
Headline loss per share is expected to slump 165%-174% to R4.50-R4.66 for the year to end-December, Amsa said in a trading update on Monday.
This represents a steeper loss than the 139%-159% the group flagged in early January.
The SA steel market’s problems, including persistently high logistics and energy costs and insufficient government policy interventions, have caused Amsa to face severe financial difficulties. The rise of mini-mills has also made the landscape more competitive.
In early January, Amsa announced the closure of its long-steel factories in Newcastle and Vereeniging. This move could result in the loss of 3,500 direct jobs and jeopardise an additional 25,000 jobs in the steel value chain.
The company postponed closing down the long-steel business last year, citing promises of improvements from the government and Transnet. However, since the government did not follow through to level the playing field against international and local competitors, it has been compelled to close the plants.
The steelmakers’ widening losses come amid talks of a possible bailout package of as much as R1bn for the firm.
Business Times reported that the Public Investment Corp (PIC), the Industrial Development Corp (IDC) and even the Unemployment Insurance Fund (UIF) could be tapped as part of the rescue package. Still, it remains unclear whether the package will materialise.
Amsa’s flat-steel business will continue operating after the long-steel closures, which were set to begin at end-January.
However, vehicle and components companies have warned that the short notice to mothball operations could have a crippling effect on some companies, as it could take up to a year to find alternative suppliers and get them up to quality and safety standards.
The wind-down will affect all long-steel plants, including the Newcastle works, Vereeniging works, and the rail and structures subsidiary Amras.
Newcastle’s coke-making operations will continue, though scaled back to reflect reduced demand.
Amsa has presented a positive outlook for life after long steel. According to CEO Kobus Verster, the firm can succeed in the remaining portions of the company provided it halts the long-steel business and reallocates the funds.
Moreover, as mini-mills supply half of the long steel and about 32% of the steel is imported, SA’s steel sector is set to suffer little supply disruptions, according to experts.
Amsa’s annual results are expected on Thursday.
Having slipped 12.69% since the start of the calendar year, Amsa shares fell 3.31% to R1.17 on Monday, giving it a market capitalisation of R1.3bn.
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