Optimism is waning for South Africa’s steel industry, ArcelorMittal South Africa (AMSA) said yesterday, identifying the influx of cheap imports, high costs for energy and logistics and weak demand as contributing to this against the backdrop of fresh uncertainty for its longs business that has continued to operate at a loss.
There had been renewed optimism that the steel industry will recover but headwinds and imports have persisted.
Market analyst, Dave Hazelwood wrote on X yesterday that the South African steel industry was at a precarious point, with the government trying to prop up Amsa and risking prospects for related downstream industries that rely on imports.
“Local market just isn't big enough to support primary producer, especially in longs division. Downstream industries and employment will get far bigger uplift from cheaper imports,” said Hazelwood.
Shares in AMSA fell by as much as 12.20% to R1.44 in early trade on the JSE yesterday. Although the company has traded 3.53% weaker in the past seven days, its share price has been 31.2% and 41.3% in the past 30 days and six months respectively.
Its 12.2% plunge on the JSE on Wednesday came after it noted growing uncertainty regarding its business. It said “the domestic steel industry has been facing a particularly difficult period” marred by weak demand, higher costs and persistent imports.
These were the same difficult conditions that had nudged the company to mull the shut down of its longs steel manufacturing plants in 2023.
“Long steel products business continues to operate at a loss despite business improvement initiatives implemented by the Company. (There is) support from government and stakeholders, but urgent action needed on issues such as scrap export tax reduction and preferential price system reset,” said AMSA in a trading update yesterday.
As a result of the difficult business conditions it was facing in South Africa, AMSA posted an earnings before interest, tax, depreciation and amortisation (Ebitda) loss of R466 million for the third quarter period to September. This compares negatively to a profit of R52m in September last year.
It said the Ebitda loss for the period under review had primarily been driven by losses in the longs steel business which posted a R512m loss.
Subsequently, AMSA suffered a headline loss of about R1m for the quarter to September 2024 although it said net borrowings stabilised at at R3.7 billion as at period end“due to highly prudent and intensive cash management”actions.
AMSA said there are key outstanding issues that needed to be addressed to help its operations stagger back to viability.
These include the “removal of export taxes on scrap, resetting the price preference system mechanism at an appropriate level, implementing trade measures, and addressing the logistics and energy” costs.
“We acknowledge that there has been support by government and stakeholders to progress the issues. The process to implement trade measures is progressing, although slower than anticipated,” said the company.
Amsa was also extensively engaging Transnet and government for a reduction in rail and port prices.
In July and August, South Africa’s crude steel production amounted to 460 000 tons. The company had to lower down production from its longs steel manufacturing businesses to cater for the poor market conditions.
In the August 2024 year to date period, South Africa’s primary steel imports rose by 5%, largely made up of long steel product.
Capping up a tough third quarter period for AMSA were low steel prices. It said international prices continued to fall during the quarter under review as China Free on Board (FOB) export hot rolled coil prices plummeted to $445 per ton, $473 per ton for rebar products.
These levels are about $70 per ton and $40 per ton respectively below the pricing levels as at the end of the quarter to June 2024.
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