bold spirit - ArcelorMittal South Africa

11
ArcelorMittal South Africa
Annual Report 2010
The key drivers of our business are steel demand, steel prices
and costs.
Dear shareholder
The company achieved a strong
rebound in profitability from a loss
making position the previous year,
with an improvement in EBITDA
margin from 6% in 2009 to 12% in
2010. We had predicted a gradual
recovery in 2010, which turned out to
be the case as evidenced by the 13%
rise in sales volumes. While the year
saw the return of relative stability
in the global economy, the steel
industry is still some way from the
highs experienced in 2007 and early
2008. Externally, the company had to
contend with momentous events that
have the potential to alter the group’s
future in a significant way. Internally,
we began to lay a firm foundation
for a significant improvement in
operational performance across
the board and continued to focus
on environmental and safety
management. With respect to the
latter, we achieved the important
milestone of zero fatalities for the
year for the first time whilst our lost
time injury frequency rate improved
by a substantial margin.
Business drivers
The key drivers of our business are steel
demand, steel prices, costs − particularly
the cost of raw materials − and the
relative strength of the rand against the
currencies of our trading partners.
The global steel industry is integrally
linked to the global economic cycle.
Since the global meltdown in 2008, the
sector has experienced considerable
volatility, resulting in poor line of sight
into the immediate future.
The rebound in apparent global steel
demand that became evident in the
latter part of 2009 carried over into
the first half of 2010, with demand
increasing above levels supported
by restocking alone and rapidly rising
steel prices in almost all regions on
the back of increasing raw materials
costs. However, renewed financial
turmoil in EU countries affected
market confidence across all regions
and ushered a slowdown in the
second half of the year.
China and India are the new
locomotives of steel production and
demand, together accounting for over
half of global steel consumption. The
big question is how these powerful
regions will lead or respond to the
vacillating winds of the current
economic recovery.
In South Africa, the first half of the
year leading into the FIFA Soccer
World Cup showed good growth, but
this optimism faded in the second
half. The construction sector − the
largest consumer of steel in South
Africa by some margin − continued
to languish with no clear sign of when
recovery will be established. Consumer
facing segments in the packaging
and automotive sectors experienced
stable and good recovery respectively.
A major contributor to the weakness
in second half was the delay in the
commencement of a number of public
sector infrastructure projects which are
now anticipated in the first half of 2011.
In the near term, we believe that
the government’s infrastructure
development programme, along with
the continued growth of the South
African economy, will sustain the
local steel industry. Electricity and
water supply projects should underpin
demand, and once the construction,
consumer and mining sectors start
to recover, medium-term prospects
look promising. We expect the South
African economy to grow at 3.3% in
2011, which should translate into
steel demand growth of 7.5%.
The strong rand not only made exports
of steel less price competitive in foreign
markets, it also brought a flood of
cheaper imports into the country across
all sectors. Primary steel imports were
674 000 tonnes last year, up from
482 000 tonnes in 2009, reducing
demand for locally produced steel.
An uncompetitive currency is just as
devastating for our customers further
down the steel manufacturing chain who
find it increasingly hard to compete with
finished goods imports.
International steel prices remained at
low levels at year end, dropping 6% in
third quarter against quarter two and
falling another 6% in fourth quarter
to end the year at $718 per tonne.
Steel prices have risen considerably
since the beginning of 2011 on the
back of rising raw material prices and
restocking.