Best results since 2008. No dividend was declared, however.
Despite the volatility from the ongoing presence and repercussions of Covid-19 and its various variants, 2021 was an exceptionally strong year for ArcelorMittal South Africa.
Extracts from the report produced by the JSE SENS Department said: “The Company’s annual results were supported by a continuing strong price environment, higher sales volumes, and the benefit of robust price-cost effects, all resulting in the highest yearly EBITDA (R8 569 million) and headline earnings (R6 860 million) since 2008.”
“An acceleration of free cash flow generation, from the first half of the financial year’s R985 million to the full year’s R1 962 million, resulted in a reduction of net borrowings by R2 366 million to R1 258 million, against R3 624 million at 31 December 2020. The free cash flow performance was after the R2 724 million reduction in a significant payable with extended credit terms. This represents meaningful progress against one of the key strategic pillars of the business, namely, to improve financial resilience by operating on a net cash funding basis.”
“The Business Transformation Programme (BTP) contributed a further R2 085 million (2020: R1 543 million) in improvements, bringing the cumulative benefit achieved since the programme started in the second half of 2018 to R5,6 billion.”
“The global steel environment for 2021 was characterised by overall positive, yet differing dynamics, when comparing the two halves of the year. The first half of the year saw strong demand recovery due to low supply chain inventories and a strong recovery in steel spreads (i.e. the difference between steel prices and raw material costs). It was during the first half of the year that China reduced the incentive to export steel by cancelling the export rebates on VAT. Given the scale of the China steel industry and the size of its exports, this represented a material change to the medium-term prospects of the global ex-China steel industry. The second half of the year saw still-positive demand, though with steel prices off record highs. Falling iron ore and volatile coking coal prices were also experienced in response to easing supply constraints among exporters and notable economic interventions evident in China.”
“Regarding fair trade policy, ArcelorMittal South Africa continues to support actions which target unfair trade practices in the jurisdictions in which it operates and trades. 2021 proved to be a particularly active year as globally the unfair practices, which initially provided protection, remained prevalent. A very real risk exists of those unfair practices intensifying as supply constraints ease and markets normalise in time. The average international dollar steel prices increased by 91%, iron ore by 48%, coking coal by 82%, and scrap by 68%.”
“Turning to South Africa and the regional economy, consensus GDP growth forecasts for South Africa is around 4.6% for 2021, and those for near- and Sub-Saharan Africa markets between 3.0% and 3.3%. Steel inventory levels have largely returned to normal while business conditions in South Africa, particularly in the second half of 2021, proved to be more challenging than initially anticipated. This was due to the negative impact on sentiment of events such as the civil unrest in July, labour disputes in the downstream sector, continuing electricity load-shedding, municipal distribution network failures and lockdown uncertainty.”
“Excluding Saldanha Works, which through an orderly and commercial wind-down was placed under care and maintenance early in the second quarter of 2020, the Company’s average capacity utilisation increased from 42% in 2020 to 60% in 2021 and is currently at 79%.”
“Crude steel production (including that from Saldanha Works) increased by 34% or 769 000 tons, from 2.2 million tons to 3.0 million tons in 2021. Crude steel production marginally increased by 3% to 1.53 million tons in the second half, compared to 1.49 million tons in the first half of 2021.”
“As reported in July 2021, the safety incident at Vanderbijlpark Works’ coke-making unit was the primary contributor to the lower commercial coke production. For 2021, although commercial coke production was 43% lower at 160 000 tons, supplemented with available inventory, sales volumes remained flat at 308 000 tons. Sales fell by 40% to 114 000 tons in the second half compared to 193 000 tons in the first half of 2021 due to lower inventories and a slower post-incident production recovery.”
In his address CEO Kobus Verster explained and warned that volume recovery would also depend on the reliability of the rail service provided by Transnet, the under-performance of which had already disrupted raw material deliveries.
“The deterioration in Transnet’s service had intensified over the past 18 months as a result of cable theft and a lack of availability of spares within the State-owned company. But it formed part of a long-term trend across the group’s steel mills, which were designed to receive material by rail but were now relying increasingly on road transporters.”
“Today at Vanderbijlpark, we will receive, on a monthly basis, more than 6 000 trucks carrying iron-ore and coal.”
“Now, you can imagine that doesn’t fit into your logistical system and you have to start incurring additional cost to move material using yellow equipment, if it’s available.”
“There have been periods whereby, owing to a lack of delivery, the company has had to stop its furnaces to prevent a freezing of material and to protect its assets.”
The outlook for global steel demand remains generally positive heading into 2022. In South Africa and neighbouring countries, it is likely that demand will ease back to more moderate growth levels.
Due to a combination of supply side constraints and interventions, along with the sporadic demand momentum (especially in developing economies), international steel prices are off the highs of 2021, although prices continue to receive support from robust raw material prices.
Overall, this view is conditional upon central banks’ responses to rising inflation, the extent to which growth slows in China and the progress with vaccination coverage, especially in developing countries.
The full results announcement is available for viewing at https://senspdf.jse.co.za/documents/2022/JSE/ISSE/ACL/AMSA-FYE21.pdf and on the group’s website at https://southafrica.arcelormittal.com/InvestorRelations/AnnualResults.aspx