ARCELORMITTAL SA: Hardy AMSA Plans for Return to Profitability

Steel remains the backbone of the global economy, underpinning infrastructure from north to south and east to west. Despite environmental concerns in manufacturing, steel is an enabler of life. According to EUROFER, the European Steel Industry, ‘modern society would be impossible without steel’.

As part of the global energy transition, and with investors calling for an acceleration of ESG strategies, steel has found it difficult to cope. Around the world, the sector has been shocked, especially in traditional markets. Now, China and India lead the way by a strong margin when it comes to production. Coincidently(?), these are two of the top three carbon dioxide emitting nations globally.

In South Africa, one of the world’s largest steel makers, ArcelorMittal, has been active since 1928. Through various iterations, the company has grown and merged to become the largest steel company in the country. But, like in other regions, a flagging local economy combined with changing market dynamics and increasing prices have decimated local steel making, and many are turning to imports from Brazil, Indonesia, Vietnam or the other big producers.

For ArcelorMittal in South Africa this is a problem. The company runs a significant operation and contributes to the national economy. The mining industry in particular is both a supplier and a consumer of SA steel. Local manufacturers are desperate for fast turnaround times from a local supplier. And the government is keen to see more sustainable jobs created in a sector with so much potential.

NEW INDUSTRY SECTORS

So what is being done to unlock opportunities? CEO Kobus Verster has long said that renewable energy is a major source of potential for the company. He has also highlighted transport infrastructure and construction as industry sectors where ArcelorMittal can remain a strong player. The key is to drive down the cost of production while highlighting the benefits of buying local.

The first area to look at is energy. The company has been critical of the country’s well-known energy issues. Loadshedding has been damaging for steel makers who require significant amount of energy to produce. In South Africa, the company has already made its intentions clear. In 2020, ArcelorMittal SA said it was looking for Power Purchase Agreements (PPAs) with Independent Power Producers (IPP) for its sites in Vanderbijlpark, Newcastle, Vereeniging, Pretoria, Thabazimbi and Saldanha. In 2022, it was announced that two renewable energy plants had been planned for Gauteng and the Western Cape with the group hoping to demonstrate what is possible with renewable energy, and providing a long-term future for its thousands of local employees. 100MW total capacity would be the goal for the two plants, which ArcelorMittal hopes to see operating by the end of 2025.

For this heavy manufacturing firm, the introduction of meaningful renewable energy cannot come quick enough. Eskom and Transnet challenges are unabating, and while loadshedding has been light in recent months, most expect the issue to return. Transnet faces longer-term overhaul as it implements a major turnaround strategy that impacts the ability of all of South Africa’s exporters.

But positivity remains inside the company as it edges closer to the start of construction for its first solar PV plant. In May, it was announced that Vanderbijlpark will host the project, currently out for tender. ArcelorMittal is awaiting the receipt of approval from Eskom around the grid connection, and when this is confirmed construction can progress quickly. Projections suggest that the project will supply 43% of the facilities energy demand and 23% of the South African operations overall requirement. This, said Vorster, would drastically reduces costs and improve environmental credentials.

In Saldanha, experiments are underway to revive the once magnificent site – a former hive of activity – by introducing hydrogen production. South Africa has long been hailed as a country with huge hydrogen production potential because of its abundant natural resources. Green hydrogen is the premier form of hydrogen production – using renewable energy to power electrolysers and leaving only water as a byproduct.

ArcelorMittal SA has signed a MoU with an international developer of renewable energy to investigate potential for production of green hydrogen directly reduced iron (gHDRI). The hydrogen could be exported or used locally as the company looks to decarbonise its operations around the country.

OVERCOMING CHALLENGES

Despite the opportunities that are presenting themselves frequently, the company has been forced to re-strategise as it prepares for a future that is uncertain and requires large investment into greening operations. Part of this rightsizing was announced in November 2023 when ArcelorMittal SA said it would wind down its longs operation from its Newcastle and Vereeniging Works. Highlighting various economic factors out of its control, the company stated that, even following a period of aggressive cost cutting and raw material pricing reductions, it had to be realistic about long-term sustainability.

“The ArcelorMittal South Africa Board and Management have reached this point after having exhausted all possible options,” said CEO Kobus Verster. “As difficult as these circumstances are, we have a duty to ensure that the business remains sustainable in the long term, in the interests of the company and its stakeholders. The remaining business, after the wind down, will be on a more sustainable financial footing and able to invest the appropriate capital in product development and available growth prospects.”

However, after a consultation period, the closure was pushed out as ArcelorMittal SA looks to develop a viable business plan for the operation with government and trade unions looking to retain 3500 jobs while securing supply of longs for construction, mining, and more industry sectors.

This show of resilience was mirrored in the company’s financial results, released on 1 August 24, where the company cited challenging market conditions but still posted a headline loss of R1,110 million, representing an improvement from the R1,442 million loss in the preceding six months.

“The company has made significant strides in environmental management, achieving 100% ISO 14001 certification for all operations,” the company said. “Notable improvements include significant progress in reducing emissions. Particulate emissions reduced by 34%, with Vanderbijlpark having achieved a 67% reduction since 2008. ArcelorMittal SA also continues to invest in community development, particularly in education and skills training, impacting over 27,000 learners and creating job opportunities for unemployed youth.”

Verster highlighted the strength of the business. “Our first-half results reflect the resilience of our business model and the effectiveness of our management strategies in navigating a complex operating environment. While challenges persist, we are confident in our ability to capitalise on emerging opportunities and drive sustainable growth for the benefit of all our stakeholders.”

Looking forward, considering the company’s investments into sustainability projects and high-payback projects, combined with slightly improved market conditions, the company is expecting to return to profitability.

“While global and local steel markets remain challenging, ArcelorMittal SA sees potential for gradual recovery in the second half of 2024. The company expects to return to profitability, supported by operational improvements, increased production volumes, and potential positive shifts in market dynamics,” it says.

So much history, such strength, unrivalled expertise, and facilities that others could only imagine, ArcelorMittal SA remains an industry leader. Not a company to shy away during tough times, this business has been through social, environmental, economic, and financial challenges before. If there is one business that can truly say it has the experience to push on to stronger times, it is this hardy South African steelmaker.