Arcelor Mittal SA, which has already cut 1,000 jobs, plans to shed hundreds more as it battles low steel demand and rising costs.
Africa’s largest steelmaker could retrench 400 employees from the Newcastle operations in KwaZulu-Natal, CEO Kobus Verster said on Thursday.
This adds to the country’s rising unemployment crisis. Only 42% of SA’s adults are employed, according to the Centre for Development and Enterprise’s latest report on unemployment.
ArcelorMittal SA has been struggling with weak demand and rising electricity, rail and port prices. In 2019, it announced a review of its assets to cut the costs. These included the winding down of the Saldanha operations in the Western Cape, which will be completed by the end of the first quarter of 2020.
Speaking after the release of results for the year ended December 31, Verster said the company had decided not to close the Newcastle plant. “When we looked at the closure of Newcastle, we came to the conclusion that the impact of that would be substantial on the domestic market. Financially, you could say — shut it down. But there is still a cost problem,” he said.
Business Day TV spoke to ArcelorMittal SA CEO Kobus Verster about the company's performance.
On January 24, the company, after its annual revenue fell 9% to R41.35bn due to lower sales volumes, commenced with section 189 consultations that may result in the retrenchment of 400 employees.
However, Verster said primary steelmaking operations at the Newcastle plant would continue. Output from the plant would service the domestic and Africa markets. “The cost base of the business does not really justify exports (to overseas markets) in these market conditions. We are far from most export markets and our focus is mainly East Africa. So we are not focusing on exports,” Verster said.
In the year to end-December, ArcelorMittal SA’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) decreased from a profit of R3.6bn in 2018 to a loss of R632m in 2019.
The steelmaker reported a headline loss of R3.26m in 2019 compared with headline earnings of R968m the previous year. That is the largest headline loss since the 2015 financial year, when the company reported a loss of R5.37bn. In 2016, the company reported a headline loss of R2.58bn.
ArcelorMittal SA’s net borrowings increased from R475m to R3.37bn.
The company decried the deteriorating conditions in the local steel market, saying steel consumption had decreased 6% to 4.5 million tonnes for the year. It attributed the fall to negative growth in steel consuming sectors, lack of investment in infrastructure, electricity supply constraints and low business confidence.
The company, total sales volumes of which fell 8% to 4.1 million tonnes, did not declare a dividend.
“The 2019 financial year represented the most challenging year for the world steel industry since the global financial crisis, and an exceptionally difficult year for the SA economy and, thus, for ArcelorMittal SA,” Verster said.
“The downturn in the world steel industry has been faster and deeper than could have ever been anticipated. The correlation between steel prices and raw material costs has broken down.”
ArcelorMittal SA's share price dropped 4% to R1.20 on Thursday.
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