THE CEO of ArcelorMittal SA, Paul O’Flaherty, has warned of a “bloodbath year”, indicating that anti-dumping duties of as much as 30%-60% on some Chinese steel products could be needed to sustain the cash-strapped steel maker’s operations.
SA’s largest steel maker said it would seek to raise R4bn-R4.5bn by way of a rights issue underwritten by Luxembourg-based shareholder ArcelorMittal and that it was in talks with government on measures to ensure the longer-term viability of SA’s steel industry.
Mr O’Flaherty said ArcelorMittal SA’s future hung in the balance unless government did more than impose a 10% duty across the board on rampant imports of cheap steel from “unfair trader” China.
He said SA’s economy was in “dire straits”, with steel consumption far below what had been anticipated at a time when the company had lost all financial resilience after R13.5bn was sliced from its worth in the past year. The group has decided to close the meltshop at its Vereeniging works, putting 283 jobs on the line.
But there had been “positive developments”, which Mr O’Flaherty hoped would mean that no jobs would be lost other than through voluntary early retirement and voluntary separation.
The group has patched up chronically poor relations with the state by implementing a “fair” price for steel products, while carrying out a long-delayed broad-based black economic empowerment transaction for 26% ownership of the company.
Tariff protection of 10% on all steel imports will kick in at the end of this month, and Mr O’Flaherty said there was the possibility of more stringent anti-dumping measures of 30%-60% on some Chinese steel products being imposed in the first quarter of next year.
“The reality is until ArcelorMittal SA started to show good faith and that it would work with government, we were never going to get (tariff) protection,” Mr O’Flaherty said on Friday at the quarterly trading update.
The ArcelorMittal SA update comes as the country’s second-largest steel producer, Evraz Highveld Steel & Vanadium, teeters on the brink of oblivion. Business-rescue plans that involve its fire sale to Hong Kong-based metals interests are being opposed by the parent in London, Evraz plc.
“ArcelorMittal SA’s response is a textbook example of transparency and crisis management, such that it is difficult to see what else it could be doing other than go into business rescue,” Stephen Meintjes of Momentum SP Reid Securities said on Friday. “What is encouraging is that the controlling shareholder is giving full support, which contrasts with Evraz at Highveld.”
Along with writedowns of about R1.5bn, ArcelorMittal SA’s loss per share for the year to December will be 11 times worse than its loss last year.
The announcements led to the stock falling 7.53% in late afternoon trade on the JSE on Friday to R7.25 a share.
Mr O’Flaherty said the group’s plans assumed that all the initiatives undertaken with government would be in place in the first quarter of next year.
“However, we will need a strong social pact with labour to ensure we can urgently pursue the productivity improvements necessary to ensure the sustainability of the business.”
ArcelorMittal SA has also negotiated a new iron ore supply contact with Kumba Iron Ore that will see prices match and even discount those paid to Kumba by Chinese ore importers.
The proposed rights offer will enable the steel maker to pay down debt and recapitalise its operations. The bulk of the funds will be used to settle an ArcelorMittal group loan of R3.2bn that has kept the South African subsidiary afloat.
A circular incorporating the notice of a general meeting to consider the rights offer will be distributed today.
Mr O’Flaherty said a “footprint review” conducted at the main Vanderbijlpark works had shown the plant needed to be run at optimal capacity and would not see any operational or job cutbacks.
“A number of significant operational, productivity and cost-efficiency improvements will be implemented over the next two years,” he said. “However, the sustainability of the … works is heavily dependent on the implementation of import tariffs and other trade remedies requested from government, as well as the designation of primary steel for localisation.”
Paolo Trinchero, CEO of the South African Institute of Steel Construction, said: “The increase in production, capacity utilisation and sales (is) encouraging, but the need to raise additional capital shows just how tough it is to run a steel company when faced by a constant onslaught of subsidised imports and a local market with subdued demand.
“Some of the capital will be used for much-needed improvements which are a sign of confidence in the future of the business.
“The industry needs to pull together to support its primary steel industry.”