ArcelorMittal's S African subsidiary registers 1st profit in nearly decade

Steel giant ArcelorMittal's South African subsidiary AMSA has registered its first profit in nearly a decade, largely due to cost-cutting measures, higher international steel prices and higher sales volumes.

ArcelorMittal SA (AMSA), which was born out of ArcelorMittal Chairman and CEO Lakshmi N Mittal's buyout of state steel manufacturer Iscor nearly two decades ago after the steel magnate first rescued it from total collapse, last made a profit eight years ago.

In the past, AMSA faced several years of crises during which it even faced possible closure without government intervention on tariffs.

Results showed that AMSA made a net profit of 1.3 billion rand (over USD 90 million) from a loss of 5 billion rand a year earlier, largely due to to cost-cutting measures, higher international steel prices and higher sales volumes.

Embattled by falling global demand for steel, low infrastructure development in South Africa and cheaper Chinese imports, AMSA saw its share price take a 98 per cent drop since a peak in 2001.

In 2017, the South African government intervened after the threat of an entire town facing unemployment at the original Iscor production facility in Vanderbjlpark.

Mittal flew into South Africa for urgent talks with senior government officials to attempt a rescue.

AMSA chief executive Kobus Verster said the group's 2018 results were due to stronger international prices and higher sales volume despite the weakness of the South African economy.

Various initiatives were also taken to ensure the sustainability of the company, including a business transformation programme that was initiated to address cost reduction, improve efficiencies, debottleneck steel production at all sites and optimise procurement contracts.

Verster added that markets on the African continent, including South Africa, still faced the prospects of cheaper Chinese steel imports, but held out hope for positive developments in the rail, road and energy sector in the west and east sub-Saharan regions.

Ian Cruickshanks, the chief economist at the South African Institute of Race Relations, commended AMSA for cutting costs.

"They have cut costs to the bone; you have to give them credit for that.

"However, there is no market. You have to have someone to sell the steel too. If you have no buyer, you have no business. Selling to Africa is good, but Amsa is competing with China in those markets," Cruickshanks told the daily Business Day Friday.