It is reported that ArcelorMittal SA has put growth plans on ice as global recession wreaks havoc in steel using sectors. A dramatic slump in demand saw ArcelorMittal’s liquid steel output drop an unprecedented 54% in the past quarter, while the average price for steel products was 60% off its peak in August 2009. As a result, Mittal has postponed indefinitely all capital investment plans geared at growth.
Ms Nonkululeko Nyembezi Heita CEO of ArcelorMittal SA said that growth programs would resume only when market recovery was established firmly, suggesting next year tentatively. So far production cuts have not resulted in retrenchments, but ArcelorMittal has cut its use of temporary workers almost entirely.
With steel feeding into strategic sectors in the economy, such as mining, construction, automotive and agriculture, steel sales are a fairly accurate barometer for activity in the broader economy. Although public sector infrastructure works are providing a measure of insulation from the downturn, the slowdown is being felt severely in the private sector.
ArcelorMittal said in October 2008 that it would cut steel production 30%, responding to the slump in demand as fallout from the credit crisis hit the real economy. However, steeper cutbacks were required, with production in December down a massive 82% as demand slumped to rock bottom, leaving Mittal with massive stockpiles of unsold product. Inventory levels at the end of last year topped 1 million tonnes more than double the inventory of less than 500000 tonnes a year before. Mittal cranked up its furnaces again last month, but production was still 34% behind output levels in the third quarter.
But the projections are grim. Chief financial officer Kobus Verster warned that the effect of lower steel prices, combined with a lag in the decrease of raw material costs, would squeeze margins with a substantial drop in headline earnings in the first quarter of this year projected. The surge in commodity prices in the first six months of 2008 meant input costs have also risen sharply, up 57% on average from the previous year.
(Sourced from Engineering News)
