ArcelorMittal seeks special electricity prices in SA
The steel maker has applied for a special price dispensation as part of a broader cost-cutting drive
Steel maker ArcelorMittal SA, which has reported a full-year profit for the first time in eight years, has applied for lower electricity tariffs for its operations.
ArcelorMittal SA CEO Kobus Verster said on Thursday that regulated prices, which include electricity and rail costs, accounted for 18% of the company’s total costs. A favourable electricity pricing model will boost the company’s cost-saving initiative, he said.
Africa’s largest steel producer plans to cut its costs by $50 per tonne by 2021. Verster said the company was on course to achieve that. “We are monitoring these things on a weekly basis,” he said.
The company's share price rose 7.87%, the highest in five weeks, to close at R3.70.
ArcelorMittal's applications to the National Energy Regulator of SA (Nersa) for a special price dispensation — which normally lasts for two years — come in the midst of stiff opposition to Eskom’s application for a tariff hike of more than 15% a year over the next three years, with several organisations and companies warning of the dire consequences of such a move.
Anglo American CEO Mark Cutifani told the Mining Indaba this week that Eskom was the biggest risk to the company’s South African business in the short term.
Speaking after the release for the company’s financial results for the year to December, Verster said ArcelorMittal, whose sites include Vanderbijlpark, Saldanha, Vereeniging and Newcastle, wanted electricity tariffs that would enable it to be competitive.
“We need to have an equal footing versus our competitors,” Verster said. He said the electricity prices in SA were approximately 30% higher than the international benchmark.
ArcelorMittal submitted different applications for its various sites as the economic drivers and conditions for the operations were different, said Verster.
Verster expects the applications to be finalised “in three to four months’’.
Analyst Ian Cruickshanks on Thursday said ArcelorMittal was operating in a tough environment. “The global market is oversupplied. Locally, this is an industry this is an industry that is not getting a lot of support. There is no investment from the manufacturing, mining and construction sectors. They are doing their best in an environment that is against them,” Cruickshanks said.
Verster said there were still about 769,000 tonnes of imports. “That is 16% of the local consumption. The real issue actually is the 4% reduction in local consumption. You see a reduction in the imports but you will not see an equivalent improvement in our local sales because the domestic market is also shrinking,” he said.
The company’s strategy was to increase volumes. “It is very difficult to be competitive, from a cost perspective, if you are running at 70% capacity. We have to produce what we currently do on a stable basis. Then we have to start increasing our capacity,” he said. The additional volumes could be exported to the rest of Africa, he said.
The company’s full year earnings came under pressure from weaker domestic demand.
Verster said ArcelorMittal, however, benefited from higher steel prices and increased sales volumes. The company said there was increased demand for steel in key markets such as China, Europe and the US.
Revenue increased by 16% to R45.3bn, primarily as a result of a 12% increase in average net realised steel prices, from R8 338 per tonne to R9 301 per tonne, and higher sales volumes of 5%.