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Operational update
ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration Number 1989/002164/06)
Share code: ACL ISIN: ZAE 000134961
(“ArcelorMittal South Africa “, “the Company” or “Group”)
UNAUDITED OPERATIONAL INFORMATION FOR THE QUARTER ENDED 31 MARCH 2016
AND OPERATING UPDATE
Overview
Steel Industries around the world continue to struggle and the South African steel industry is not
immune to the international trend. The Chinese steel industry continues to deal with
overcapacity which has led to a global oversupply. For the first quarter of 2016, South Africa
continued without duties on Hot Rolled Coil (HRC) resulting in 164kt of steel being imported into
the country for January and February 2016 of which 79kt (48%) was HRC. However, there are
positive signs. In April 2016, the International Trade Administration Commission (ITAC)
recommended the imposition of the tariff duty of 10% on the two outstanding applications, HRC
and Other Bars and Rods (OBR), which are being taken through the relevant government
process for implementation. The base price of HRC internationally has increased by USD 86/ton
from December 2015 to March 2016. At the same time the main elements of the raw material
basket, namely Coal, Iron Ore and scrap; have also moved up USD 6/ton, USD 16/ton and USD
26/ton respectively. Safeguard duties still remain critical in the short term to ensure the future
sustainability of primary steel production.
Compared against Q1 2015:
- A successful rights issue of R4.5bn was concluded
- The Company announced its intention to do a B-BBEE transaction, with Likamva Resources
as the preferred partner
- Capacity utilisation decreased from 84% to 81%
- Steel production was lower by 9% (4% excluding Vaal Melt Shop)
- Steel sales were higher by 3% mainly on exports
Key Initiatives - Update
In its SENS announcement dated 3 February 2016, the Company indicated that the reasonable
prospect of returning to profitability in future was based on the expectation that the tariffs and
designation measures would be in place at the end of Q1 2016 or shortly thereafter. The status
of these key initiatives is as follows:
• ITAC has recommended the imposition of the tariff duty of 10% on the two outstanding
applications - HRC and OBR, which are being taken through the relevant Government
processes for implementation. All 10 applications for the 10% tariff duty are therefore
completed (subject to the final implementation with regard to HRC and OBR).
• The safeguard duty applications previously submitted were reviewed by ITAC. The
queries regarding the safeguard applications have been addressed and they have been
re-submitted. The investigation in respect of safeguard duties relating to HRC has been
initiated. Due to the combination of certain products one further application remains
outstanding and will be finalised shortly.
This report is available on the ArcelorMittal South Africa’s Web site at: http://www.arcelormittal.com/southafrica/.
Share queries: Please call the ArcelorMittal South Africa Share care toll free on 0800 006 960 or +27 11 370 7850.
ArcelorMittal South Africa Limited:
Unaudited operational information for the quarter ended 31 March 2016
• Significant progress has been made with the Department of Trade and Industry (dti) and
the Economic Development Department regarding a pricing mechanism for local flat steel
going forward but the process has not been finalised. It is anticipated that it would be
finalised shortly.
• The company has been informed that the proposal for the designation of local primary
steel for state procurement and use in government infrastructure projects has been
submitted to National Treasury for consideration.
• Following the recent increases in international steel prices, and subsequent steel price
increases by the Company, it is anticipated that overall liquidity will normalise at
acceptable levels.
There has been significant progress with the key initiatives and while implementation of all the
initiatives has not been completed by March 2016, indications are that further interventions as
mentioned above will be approved in Q2 2016 or soon thereafter. Progress regarding the key
initiatives is reviewed on a regular basis. Despite the completion of the 10 % duties as
explained, it should be pointed out that the implementation of safeguards remains critical to
address the issue of imports and ensure the sustainability of the industry and the Company.
Operating Update
Liquid steel production was 122 000 tonnes (9.0%) lower than Q1 2015. The lower liquid steel
production follows the reduced production during the latter part of Q4 2015 when only one blast
furnace was operated in Vanderbijlpark. The subsequent restart and ramp up of the blast
furnace during January 2016 compounded by negative market conditions, operational
requirements and the closure of the Vaal Melt Shop at the end of 2015 contributed to the lower
production. On a normalised basis, long steel production increased 15kt. Capacity utilisation
was at 81% against 84% in Q1 2015.
Domestic sales increased by 12 000 tonnes (1.4%) with long products higher by 23 000 tonnes
and flat products lower by 11 000 tonnes compared to Q1 2015. The domestic market remains
impacted by a continuation of cheap imports from primarily China. Export sales increased by 21
000 tonnes (10.2%) when compared to Q1 2015. Commercial coke sales were 16 000 tonnes
(14.4%) higher than in 2015 due to higher availability of commercial coke.
As announced, ArcelorMittal South Africa has been able to increase prices in Q1 2016.
Vanderbijlpark Works
Consistent with the findings of the footprint review conducted in 2015, Vanderbijlpark Works is
viable only to the extent that the assets run at their optimal capacity, thus leaving little
opportunity to terminate non-profitable revenue streams. Compared to Q1 2015, HRC cost
decreased 4% in rand terms and 29% in dollar terms following various programmes focused at
reducing cost.
While progress has been made it is still the case that without the requisite safeguards as applied
for, and without the initiatives committed by government regarding the use of local steel for
government infrastructure projects, the steel industry and the Company remains vulnerable and
will need to undertake significant structural change should international prices remain volatile on
the back of cheap Chinese steel being dumped globally.
ArcelorMittal South Africa Limited:
Unaudited operational information for the quarter ended 31 March 2016
Saldanha Works
As announced before, and as was the case with the Vanderbijlpark Works, a review of the
Saldanha Works was also initiated. At this stage and based on the current prices (and the
increase in international prices) the Saldanha Works remains viable. The price of electricity is
critical to the Saldanha Works input costs as the production process relies heavily on electricity.
Therefore, in the long term, Saldanha Works needs alternative energy solutions such as access
to affordable electricity which is vital to ensure its long-term sustainability. The company is at an
advanced state of exploring various options in this regard including an independent gas-to-
power producer located in Saldanha. Such a project relies strongly on government support for
the importation of Liquefied Natural Gas, and other regulatory approvals.
Competition Commission
As reported in the previous SENS announcements, the settlement discussion with the
Competition Commission is ongoing, and is subject to the final approval of the terms of the draft
settlement agreement by the Company as well as the Commission and the Tribunal.
ArcelorMittal South Africa Limited:
Unaudited operational information for the quarter ended 31 March 2016
Outlook for Q2
Market conditions are expected to remain difficult although sales and prices are expected to
increase. Shareholders are reminded that the future sustainability of the Company is highly
dependent on resolving all outstanding matters including localisation of steel for government
infrastructure projects, tariff protection (which has been completed subject to final
implementation of HRC and OBR) , as well as the implementation of safeguards and a fair
pricing mechanism.
Operational information
Quarter ended Year
31-Mar 31-Dec % 31-Mar % 31-Dec
2016 2015 change 2015 change 2015
Liquid Steel
production 1 227 1 094 12.2% 1 349 -9.0% 4 839
- Flat Steel Products 000 tons 827 666 24.2% 896 -7.7% 3 145
- Long Steel Products 000 tons 400 428 -6.5% 453 -11.7% 1 694
Capacity utilisation 81 67 20.9% 84 -3.6% 74
- Flat Steel Products % 79 63 25.4% 87 -9.2% 75
- Long Steel Products % 85 74 14.9% 80 6.3% 73
Steel sales
- Local 000 tons 885 684 29.4% 873 1.4% 3 039
- Flat Steel Products 000 tons 560 429 30.5% 571 -1.9% 1 915
- Long Steel Products 000 tons 325 255 27.5% 302 7.6% 1 124
- Export 000 tons 227 241 -5.8% 206 10.2% 1 092
- Flat Steel Products 000 tons 166 143 16.1% 157 5.7% 763
- Long Steel Products 000 tons 61 98 -37.8% 49 24.5% 329
- Total 000 tons 1 112 925 20.2% 1 079 3.1% 4 131
- Flat Steel Products 000 tons 726 572 26.9% 728 -0.3% 2 678
- Long Steel Products 000 tons 386 353 9.3% 351 10.0% 1 453
Coke and Chemicals
- Commercial coke
produced 000 tons 86 93 -7.5% 108 -20.4% 406
- Commercial coke
sales 000 tons 127 110 15.5% 111 14.4% 451
- Tar sales 000 tons 20 25 -20.0% 24 -16.7% 96
By order of the board
6 May 2016
Sponsor to ArcelorMittal South Africa Limited: JP Morgan Equities South Africa Proprietary
Limited
For further information please contact: Themba Sepotokele, Corporate Communications,
Corporate Affairs Telephone +27 16 889 2425
Date: 06/05/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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