ArcelorMittal reports profit slump of almost two-thirds, while debt doubles | Business

• SA’s largest steel producer ArcelorMittal SA has flagged a slump in profits and surge in debt for 2022.
• It had to battle weaker demand, rail and electricity dysfunction, and a sharp rise in interest costs.
• But while capacity utilisation slumped in its fourth quarter amid a rail strike and truck shortage, it says its operating environment has improved recently.
• For more financial news, go to the News24 Business front page.

SA’s largest steel producer ArcelorMittal has reported a profit slump for its 2022 year, when its capacity utilisation fell to less than half as it battled weaker demand, higher input costs, load shedding, as well as the fallout from dysfunction on Transnet’s rail networks.

Headline earnings fell 62% at R2.6 billion to end-December, the group said on Wednesday, amid a 20% drop in crude steel production, while the cost of its basket of raw materials climbed 38% – driven by a more than doubling of the cost of imported coking coal.

Four notable Eskom and four municipal equipment failures occurred the year, ArcelorMittal said, adding that it had fortunately avoided any significant equipment damage. Sales deliveries were also affected by disruptions to Transnet’s rail network, including a strike in the second half of the year, but Arcelor said on Wednesday daily briefings had shown benefits, even if overall performance still remained below service design. A shortage of trucks, which were being snapped up by coal miners enjoying high prices, also contributed to pressure on overland deliveries, the company said.

ArcelorMittal SA, valued at R4.54 billion on the JSE, dates back to 1928 and is part of the global ArcelorMittal group. It produced more than half of SA’s steel in 2022.

The company’s average capacity utilisation decreased from 60% in 2021 to 47% in 2022, it said, in part due to a 12% reduction in demand, but also due to labour disruptions, as well as those from electricity and rail.

Current capacity utilisation is 79%, however, with the firm also expecting a better trading environment in the first half of 2023, though it said the sustainability of recent price increases still need to be tested.

The group’s net debt also more than doubled to R2.8 billion in 2022, in part due to a doubling of capital expenditure, including its Newcastle blast furnace’s mid-life restoration. Working capital also increased, partly due to a decision to restore inventory levels after the blast furnace restoration, as well as a decision to hold additional raw material inventory to counter the effects of further rail disruption.

“ArcelorMittal SA will continue to react swiftly and decisively to the difficult market conditions. We will increase volumes through targeting import replacements and Africa overland volumes, following an assertive cash management process, and adopting a flexible approach to operating plants in reaction to the available order book, while adjusting fixed cost levels accordingly,” CEO Kobus Verster said in a statement.

“The business is positioned to navigate the immediate and near-term challenging market conditions while remaining focused on our longer-term objectives, namely, to leverage off the long-term investment case for steel, as well as the vital role it will play in the re-industrialisation of the South African economy and the transition to a low carbon, circular economy,” he said.

The company’s shares were down 2.51% to R3.89 in morning trade on Thursday, having fallen by a fifth so far in 2023, and by over 60% on a one-year basis. The shares had crashed about 15% in January, when it released a trading update flagging its performance.