steeled for r1bn profit

Zweli Mokgata

Zweli Mokgata

Africa's largest steel producer ArcelorMittal South Africa boosted profits by over R1billion last year despite increasing input costs and lower production volumes.

Profits in the South African arm of the world's largest steel producer, whose market capitalisation is measured at R75,6 billion, were boosted by high international demand and rapidly increasing steel prices to bring its profit for the year up to R5,7billion. This was a 21,7 percent increase from R4,7 billion profit recorded in 2006.

Rick Reato, the company's outgoing chief executive, said: "We lost 300000 tonnes last year due to the relining and closure of one of our blast furnaces, but we are very bullish about local and global demand."

The company experienced a 9,6percent decrease in production, but the rapid rise of steel prices kept its margins in tact. The price for hot-rolled coil steel jumped from $549 per tonne (R4200) in January last year to over $620 per tonne (R4 800) by the end of the year.

The company's production has been falling steadily since 2005.

"You can't ignore the effect that the reline of a blast furnace has on productivity. It lies at the centre of our production and the relinement (renovation) of it is a long and extremely expensive process," said Reato.

The company is expected to begin construction of a new blast furnace at its Newcastle plant which will bring an additional 1million tonnes once it is completed in 2011. Two blast furnaces are expected to undergo renovations this year, which will bring production down even further.

The company is facing major hurdles this year which will cast a shadow over the appointment of incoming chief executive Nku Nyembezi-Heita.

A competition tribunal appeal hearing is expected to reveal the future of the company's pricing. The tribunal slapped the company with a R691million fine last year for excessive pricing, but countered the claims with an appeal which will be heard this year.

The company could also face a R304million fine from the South African Revenue Services for unpaid taxes.