A RE-OPENING of Saldanha Steel, which was mothballed in early 2020, on the back of markedly higher steel prices does not look on the cards…at least in the short term.
This is not good news for the struggling West Coast economy, although there will be come relief that Arcelor Mittal, the owner of Saldanha Steel, is now in a far healthier financial position.
AMSA recently reported well reinforced interim results to end June with revenues up a whopping 55% to R18.6 billion and bottom line swinging R2.5 billion into the black after being R2.6 billion in the red for the corresponding period last year. CEO Kobus Verster said this was the best performance by AMSA in the last decade.
What’s more AMSA generated almost R1 billion in free cash flow, which helped slash debt from R3.7 billion to R2.7 billion.
So here is the scenario: A robust steel price – up 79% increase in average international dollar steel prices (with a 42% increase in realised rand prices) – and a bullish outlook for prices into the second half of the year, coupled with a company that no longer looks as fragile as it did in 2019/2020. Would these changed circumstances cause AMSA directors to revisit the decision to mothball Saldanha Steel?
It seems unlikely. At an investment presentation Verster was asked whether there had been a status change at Saldanha Steel, and whether the plant was again partially in operation.
He stressed Saldanha Steel – which employed around 1 100 full-time workers and contractors – was still fully in “care and maintenance” mode. “There is a small contingent of people that are ensuring the asset remains in good shape…starting the motors and greasing the pumps.”
But optimists might see a glimmer of hope in Verster’s contention that it was important to keep the asset in a fit state so that if, over the longer term, it became commercially sensitive, AMSA could re-start a plant that had not been vandalised.
Gut feeling is that a leaner and meaner AMSA – which has indicated the resumption of dividends is some way off – might be wary of making a rushed decision about Saldanha Steel.
What was Verster asked, though, was how did AMSA capitalise on “local ambitions” for green hydrogen and green steel production by revisiting the longer term ‘green opportunities’ for a plant like Saldanha Steel?
Earlier this year AMSA signed an agreement with a local independent power producer (IPP) to buy land next to the Saldanha Steel plant. The AMSA presentation also disclosed that Saldanha Works identified by SA-EU Partnership and CSIR for potential green DRI (direct reduction of iron) production opportunity for export purposes.
