ArcelorMittal SA says 2,000 jobs are at risk following interim loss
The steelmaker will start a consultation process amid an expected slump of at least R596m
ArcelorMittal SA says more than 2,000 jobs may on the line, after the steelmaker slipped to a headline loss in the six months to end-June.
A wave of job cuts has been rippling through corporate SA, with Hulamin, Group Five, Basil Read, MultiChoice, Sibanye-Stillwater, Tongaat Hulett, Standard Bank and Absa among those that have flagged retrenchments.
ArcelorMittal SA’s announcement comes at a tough time for the industry. Steel producers globally have been grappling with lower selling prices amid overcapacity and a slowdown in the world economy, as well as rising raw materials costs — including iron ore. In SA, surging electricity tariffs have placed an extra burden on the energy-intensive industry.
“Due to the difficult domestic economic environment, the SA steel industry continues to face significant challenges,” ArcelorMittal said in a statement on Wednesday.
“Certain costs that are not within the company’s control, such as high electricity, rail, port, and primary raw material costs, have contributed to these challenges.”
ArcelorMittal said it expects to report a headline loss for the six months to end-June of at least R596m, from headline earnings of R54m a year before.
While the company has taken steps to save costs, these alone were not enough. “More significant measures have become necessary, including the review of staffing levels, together with other interventions,” it said.
The company plans to start a consultation process and a “large-scale restructuring is contemplated”.
“It is anticipated that in excess of 2,000 positions — full-time equivalents — may be affected. The final outcome and number of positions affected is subject to a formal consultation process.”
The company’s shares were 17.1% down at R2.87 at one stage on Wednesday morning. The stock was at R3.13 in early afternoon trading, a 9.5% fall on the day.
Afrifocus portfolio manager Cheslyn Francis said ArcelorMittal’s announcements were “partially unexpected” in the light of management’s efforts to reduce net-borrowings and improve sustainability and profitability.
And the rand’s moderate gains towards the end of the interim period “should have been a positive contributor to financing costs”.
“They’ve been making all the right noises, but markets are somewhat uncertain — rising electricity pricing is a large consideration — and at times overreacts to any negative news,” Francis said.
“The market has been brutal on the ‘SA inc’ stocks, but unfortunately, with local demand skittish and geopolitical uncertainty, it causes some dissonance in small-caps.”
Analysts at ANZ Banking Group said in a note on Wednesday that iron ore prices had reached a five-year high owing to “tight” supply.
“Exports from Brazil and Australia have improved, but it will be tough to bridge the supply gap created by the Vale crisis and bad weather in Australia early this year. Port stockpiles are still low, keeping the backdrop supportive,” the bank said.
“That said, the China Steel Association commented that prices are not at a sustainable level and Chinese steel output is expected to fall amid increasing environmental pressure. Steel rebar prices moved higher as well amid stronger demand.”