Why ArcelorMittal blames Eskom and Transnet for losses
Company blames Eskom and Transnet for high costs
ArcelorMittal SA blamed Eskom and Transnet for unsustainable service costs as it posted another loss on Thursday for the interim period to June 2017.
The company said Eskom’s winter tariffs for its plants were 183% higher than electricity costs for the next most expensive plant in the global ArcelorMittal group. Meanwhile, Transnet tariffs — including for ports — were extremely high.
"For the past five years, we have paid Transnet a tariff that is 50% more than the PPI [producer price index]," ArcelorMittal SA CEO Wim de Klerk said.
He also said Eskom was not prepared to go to the National Energy Regulator (Nersa) and fight on behalf of its big clients. Instead, the utility told ArcelorMittal SA to go to Nersa itself.
He said that ArcelorMittal SA was spending an "inordinate amount of time" assisting downstream steel producers in SA, who faced a flood of imports of Chinese finished steel products.
Meanwhile, there was huge domestic production overcapacity in South African steel markets. In addition, the average cost of the raw materials basket comprising hard coking coal, iron ore and scrap metal had shot up 38% as rand strength had cost R1.5bn from the same period previously. This helped negate average domestic sales price increases of 23% and 8% for exports in the period.
An agreement with the government to limit product prices and an inability easily to streamline 8,670 full-time employees without state buy-in also hampered the steel producer, even as revenue rose 12.6% to R19.1bn in the interim period. The metals and engineering sector made up two-thirds of the PPI for intermediate manufactured goods.
Steel and Engineering Industries Federation of Southern Africa economist Marique Kruger said SA’s manufacturers had little room to pass on cost increases in a weak economy.
Statistics SA’s June PPI for intermediate goods recorded a 2.1% increase between June 2016 and June 2017, down from the 3.1% year-on-year increase in May.
"This reflects a fourth consecutive year-on-year decline," Kruger said. "PPI measures factory gate prices and therefore is a good proxy for selling price inflation in the metals and engineering sector."
Some of ArcelorMittal SA’s woes are a function of a complex global industry that is being flooded with cheap Chinese imports. But economic and policy turmoil in SA also helped the group to a total comprehensive loss of R2.46bn in the period.
The firm has promised the government it will invest R4.6bn in a modern plant and machinery over the next five years, as production outages across its facilities and a fire cut 150,000 tonnes of steel output.
But ArcelorMittal SA said that despite improvements in global steel demand and steel prices, a lack of investment — especially in SA’s construction and manufacturing sectors — and continued cheap imports of primary and finished steel products were killing operations.
This comes ahead of the imposition by the government of further tariff safeguard measures of 12% on top of 10% standard tariff measures.
The interim loss came after attributable losses totalling R13.3bn for the 2016 and 2015 financial years.
The group also said that more competitors had sprung up in the country as a result of the government’s black industrialist programme, causing it to lose market share.
De Klerk said such producers now made an extra 600,000-800,00 tonnes per annum of steel products.