ACL – Business update on South African steel markets
Vanderbijlpark – South African economic activity continued to be largely stagnant in Q1 2024 influenced by the uncertainty of the national elections. In this period, South Africa’s primary steel exports increased by 13%, reflective of the 14% increase in crude steel production, all of which could not be consumed domestically given the weak demand conditions.
From a price perspective, the continued lower profitability of international steel exporters is likely to provide a floor to prices. An anticipated softening of interest rates in the second half of this year (“H2 2024”), coupled with various trade remedies are likely to provide an improved environment for pricing sentiment, boding well for a gradual recovery in prices.
Despite the overall weak market and difficult trading conditions, it has been pleasing to see some ‘green shoots’ within the manufacturing sector. By example, manufacturing production increased by 5.3% year-on-year in April, and by 5.2% month-on-month in April compared with March. This marks the largest monthly increase since August 2021. The absence of load-shedding, depending on its sustainability, should further contribute to the improvement. The latest manufacturing growth forecast for 2024 is +1.1% year-on-year.
The increase in power generation in recent months, coupled with the renewable energy projects scheduled to come on stream over the next two years, suggests that the drag on economic growth caused by the electricity shortage should gradually diminish, facilitating structurally higher production levels.
A key focus for ArcelorMittal South Africa is the upgrade and expansion of the national logistics infrastructure and the electrical supply grid (including new renewable energy capacity) as evidenced by the following positive trends:
The regional market which the Company serves, reports amongst the lowest steel consumption per capita in the world and provides ArcelorMittal South Africa with a unique opportunity for growth. The Africa Continental Free Trade Agreement (“AfCFTA”) will enable easier trade in markets of East Africa and West Africa with reduced levels of import duty for imports from AfCFTA countries. This will enable relevant preferential access of South African goods compared to non-African countries with lower and liberalised tariffs for regional trade.
Good progress has been made to ensure that the Company fully participates in this important trade initiative.
The advancement of ArcelorMittal South Africa’s high-payback investment portfolio closer to bankability, is well on track. Investment in these projects will achieve incremental earnings and cash flow benefits from sales volume growth, cost savings, net capital expenditure savings, and the progression of key decarbonisation initiatives. Work on the funding solution which will also seek to address balance sheet resilience continues.
