Thanks to government bailouts and a sweeping tariff review, the dust has somewhat settled for steel major ArcelorMittal SA (Amsa), with the group’s share price recovering 63% over the past 90 days.
The ailing steel producer earlier this year announced the closure of its longs business, putting about 3,500 jobs on the line and sparking a nationwide debate about SA’s steel trade policies.
Since then Amsa has received significant support from the state, with the department of trade, industry & competition announcing in March it would pick up the unit’s wage bill over the next year.
Shareholders have also chipped in to keep the longs unit afloat, including a R1.7bn cash injection from the state-owned Industrial Development Corporation.
In April, the government embarked on its most extensive review of steel tariffs in more than 20 years, as officials explored a more protectionist policy framework to shelter SA’s steel industry from cheap imports flooding the market.
These lifelines, and the government’s willingness to explore policy intervention, have found favour with investors on the JSE. After dipping to a more than four-year low of 59c a share in February, Amsa now hovers above R1.10.
However, this is still a far cry from 2008, when the group’s share price peaked at R265. Despite the temporary reprieve, Amsa remains under pressure, having lost 78% of its market value over the past three years.
In recent months, critics have called into question the company’s long-term viability without government support, with some, including the National Employers’ Association of SA, arguing that the state is merely postponing the inevitable.
Amsa is Sub-Saharan Africa’s largest steelmaker, and its financial woes reflect the broader decline of SA’s steel sector.
The local steel industry has bled 25,000 jobs since 2009, while production has plunged 40% below its 2006 peak, according to a report by independent economic research consultancy Econometrix.
The report blames the government’s interventionist policies in the steel industry, including the introduction of the price preference system (PPS), which regulates the export of ferrous and nonferrous scrap by not allowing the export of scrap metal unless it has first been offered to domestic consumers at a discount to the international price at the time of sale.
“The unintended consequences of government policy have resulted in declining employment, reduced exports and earnings, lost economic potential, decreased turnover, lost opportunity costs from scrap export reductions, and a negative impact on informal waste pickers,” reads the report.
In its latest annual results, Amsa outlined a turnaround strategy that focuses on its flat-steel business, including investing in a 200MW solar plant for this division.
The group’s turnaround strategy also includes a 1.5-million tonne electric arc furnace, a new galvanising and Magnelis line, a gas recovery plan to increase electricity self-generation and a plan to secure partnerships for the rolling assets under care and maintenance.
In the longer term, it hopes to produce steel with green hydrogen from its Saldanha plant and take part in the new private sector access to Transnet’s rail network.
Improvements
Some encouraging developments came in the second half of last year, when interim crude steel production levels rose by 12% thanks to greater asset utilisation in the flats business.
A “major upgrade” to the group’s plate mill is also expected to increase sales volumes this year.
Amsa has faced severe financial difficulties in recent years due to SA’s steel market problems, including persistently high logistics and energy costs, as well as insufficient government policy interventions.
The group reported a headline loss of R5.1bn, or 458c per share, for the year to end-December, from a headline loss of R1.89bn, or 170c per share, the previous year. The attributable loss for the year widened to R5.84bn from a loss of R3.92bn previously.
Amsa CEO Kobus Verster warned that the group’s turnaround strategy was threatened by “debilitating” carbon tax increases, rising electricity costs and Transnet’s rail performance. The group would be turning to shareholders to raise more capital in 2025, Verster said.
Business Day reported last month that investors had expressed interest in purchasing Amsa, according to trade, industry & competition minister Parks Tau.
Tau, who led a team of department officials to brief parliament on the implementation of the steel industry master plan and the state of the industry, said Amsa had indicated it was engaging with entities about a possible sale but cautioned that it had not reached a stage in which announcements could be made.
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