Steely resolve: CEO Kobus Verster says ArcelorMittal SA will have to cut production costs. Picture: FREDDY MAVUNDA/BUSINESS DAY
Steely resolve: CEO Kobus Verster says ArcelorMittal SA will have to cut production costs. Picture: FREDDY MAVUNDA/BUSINESS DAY

With current steel demand in SA almost at a 10-year low, steelmaker ArcelorMittal is looking for export opportunities in the rest of Africa, says CEO Kobus Verster.

The domestic steel demand looks set to be lethargic for longer, with economic growth being slow. The IMF this week lowered its economic forecast for 2018 to 0.8%, from 1.5%. It also lowered the 2019  forecast from 1.7% to 1.4%.

“Most steel companies require a reasonably strong local demand to be profitable. We are at the bottom of the cycle at this point in time and steel demand is severely impacted, with the current steel consumption in SA almost at a 10-year low,” Verster said.

He said the company wanted a bigger market share in the rest of Africa as there was no evidence of growth in domestic demand.

The foray into new markets was among steps the company was taking to improve financial and operational performance. These included restarting the Vaal Meltshop plant in Vereeniging.  

Verster said the company had prioritised reducing its cost base. “I think it is naïve to think that you can come out of a period of seven or eight years of losses and suddenly start making profits.”

The company’s “structured” cost reduction included lowering costs by $50 a ton, which would improve the company’s sustainability. In addition, ArcelorMittal wanted to increase its output, hence the decision to restart Vaal Meltshop.

 In August, the company said it was evaluating the building of a new arc furnace at the Vanderbijlpark mill, with a capacity of 700,000 tons to 1-million tons a year. Verster said the facility would stimulate employment and procurement benefits for the Vaal area.  

The low steel demand was in contrast to the improvement in international steel demand in the past two years. “China has become much more responsible in its supply. Internationally, we are around 80% of global steel capacity utilisation. That has resulted in much better prices.  In the past two years, steel companies in Europe, US, Canada, China and South America are making good money,” Verster said.

Commenting on US tariffs on imported steel and aluminium, he said the company’s exposure to the US market was minimal. But  there could be a risk of countries now exporting to the US diverting their material to ArcelorMittal’s traditional export markets, especially east Africa. “We have not seen that yet,” he said.

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