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The problem with a one-way track is that if you turn it back into a dualway, one of the interested parties is going to be upset. One can argue the same with what’s going on between South Africa, China and steel, with product being dumped in at 25% below cost. ArcelorMittal has called for anti-dumping relief but it is hard to turn a dragon around. It is also plain to see that President Jacob Zuma is the baby in BRICS and it’s not a 50/50 split – which is crippling an industry. ArcelorMittal SA CEO Paul O’Flaherty, in an interview with Alec Hogg, says government needs to decide if the steel industry is a weapon of choice for the country. “Do they industrialise through creating steel capacity or do they simply import.” The first option creates jobs and opportunity, the second decimates an industry and in Arcelor’s case 13 500 jobs. – Stuart Lowman
Paul O’Flaherty is the CEO of ArcelorMittal South Africa, thanks for joining us Paul. The cash flow statement is worrying now – really worrying. You see a net outflow of nearly R2bn in this period (six months). How much longer can you keep going?
About R1bn of that, is investment into stocks, so it’s a balance. Do you continue producing or do you slow down? We produced at 80% capacity and we built up quite a high stock level. The goal for the next six months is to reduce that stock level significantly and we’re going to curtail production. That will bring our cash and borrowing back to an acceptable level.
Even with a best-case scenario, you would still have an outflow of R1bn every six months. How much do you have to keep going?
In the next six months, we’ll claw it back because we’ve invested the R1bn in the stock and we’ll claw those stock levels back again.
Can you be cash flow positive? I think that’s the question.
Yes, we can be cash flow positive. We do have borrow-in’s from the overseas group/company and we do have overnight facilities from all the banks, so we than enough facilities where we sit today.
How bad is this Chinese dumping, then? We’ve seen reports – internationally – that you’ve gone to the World Trade Organisation. Is that accurate?
We haven’t gone. The Word Trade Organisation has duties, which have been approved for South Africa, on steel. Those duties happen to be zero percent. We’re asking that those duties be put up to the bound rate, which is ten percent, as an initial emergency measure. Secondly, we believe there are four products, which are being dumped into this country and we want to have anti-dumping relief against those products.
At what prices are they being dumped?
Below their cost – way below their cost.
Below your cost?
Below their own costs.
A figure of 25% was mentioned – 25% below your production costs.
It’s also below their production cost. With anti-dumping, you need to have your evidence. We’ve seen many countries in the world, implement anti-dumping in the last nine months against China, specifically. There’s evidence out there in the world that this is happening for the very same products we’re talking about, so we also want to ask for relief for anti-dumping.
So it is from China, which is a member of BRICS, which brought South Africa into BRICS. Politically, it’s a hot potato for you.
Alec, it comes down to the question we’ve been asking about the steel industry. Is the steel industry an important weapon for South Africa? Do we want to industrialise through having our own steel capacity as opposed to simply importing all your steel? That’s what this is about; this is protection for them. This isn’t just for ArcelorMittal. The entire industry’s at stake.
We’re seeing Evraz Highveld teetering at the moment. The bottom line: can you keep going if there’s no duty?
No. I spoke this morning about the low road and the low road scenario is that we would have to restructure our organisation. We’d have to scale down. We’d have to cherry-pick the products we want and concentrate on where we make the most profit, to survive.
What would that mean to staff or to jobs?
Unfortunately, in that scenario it’s job retrenchment.
How many, though?
It’s difficult to state, Alec. At the moment, direct jobs – 13,500 and we have a capability of producing five million tons. If you scale down and say you’re only a two-million ton producer (that you can do profitably), then it’s almost 1:1 in terms of the people you need. You could halve it.
It’s interesting reading through the commentary to the results, as well. You say that many in the South African industry have been finding ways of improving productivity. You didn’t say ‘robotics, machinery, etcetera’, but is that something you’re considering?
We have improved. We measure productivity as steel per person per year (tons of steel). That’s improving all the time at ArcelorMittal. There’s nothing wrong with the state of our plant. We can become more efficient. We use the group extensively to help us with technology issues. We have invested in automation, but its 13,500 people and we need to make sure their jobs are sustained.
So, it might actually become (worst-case scenario) more robots than human beings. Those are the realities.
That’s not our intent. Our intent is to keep the 13 500 jobs.
What about iron ore – the prices? It looks as though you have the worst of all scenarios now with what happened with Kumba.
We have. In the first half, we paid 60 percent more for our iron ore, than export price parity. That’s just not sustainable.
How big an input is that, in your overall costs?
The total raw material basket is 50% of our total costs. Iron ore accounts for 70% of that, so 35% of your total cost for a ton of steel is iron ore.
Are there any discussions that you can have with Kumba to change that?
There are. There are discussions with Kumba, discussions with Government (the Department of Mineral Resources) because it’s not a ‘take or pay’ from our side, but it’s an obligation on their side to supply what we need. We need to sit down and have a discussion about the cost base because it makes steel very uncompetitive and it can’t be the solution.
Press Statement from Solidarity
ArcelorMittal provisionally withdraws 189A
Trade union Solidarity said that ArcelorMittal provisionally withdrew the section 189A retrenchment notice at its Vereeniging steel mill. This follows after the country’s largest steel producer informed trade unions last week that it was embarking on a retrenchment process that would affect as many as 600 employees.
According to Marius Croucamp, Head of Solidarity’s Metal and Engineering Industry, the steel giant officially withdrew the notice yesterday following several talks between trade unions and management. “The company indicated that it would first hold proper consultations with all stakeholders, including trade unions, before proceeding with the formal retrenchment process,” Croucamp said.
Croucamp added that these consultations would be crucial to ensure the survival of the steel mill. “Solidarity will be an active participant in these talks in order to find workable solutions that would be in the interests of both the company and our members. We want to prevent the necessity to continue with the retrenchment process at all,” Croucamp said.
ArcelorMittal’s announcement last week followed shortly after Evraz Highveld Steel launched a retrenchment process and Kumba’s recent announcement of the closure of its Thabazimbi mine. “The steel industry is currently experiencing a very difficult time and therefore Solidarity will do everything in its power to assist members in the industry,” Croucamp said.
Solidarity represents an estimated 280 members at the ArcelorMittal steel mill in Vereeniging.
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