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Saldanha Works may need to change its business model
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Sunday, 01 Jul 2012

It is reported that Saldanha Works, the steel mill owned by ArcelorMittal SA on the west coast, is driving cost savings hard to keep the embattled plant in production in the face of soaring electricity and labor costs as it competes with international players for export markets.

The two technologies deployed at the plant need expensive inputs to convert iron to pig iron and then steel. The technologies use imported iron pellets from Brazil, making up about 20% of the raw iron fed into the plant. The balance comes from iron ore railed 861 kilometers from the Sishen mine in the Northern Cape, scrap, and a small percentage from reprocessed slag tailings.

Mr Dhesan Moodley MD of the plant said that Saldanha is looking for ways to reduce the use of pellets, which are used to improve the efficiencies in the furnaces which become blocked if just iron ore is used. The pellets cost USD 200 per tonne as compared to USD 50 per tonne for iron ore. The plant uses 2 million tonnes of ore and 500000 tonnes of pellets a year to produce 1.2 million tonnes of hot rolled coil.

Mr Moodley said that the plant will screen out fine iron ore that contributes to clogging furnaces and conduct more frequent clean outs of the furnace shafts to ensure optimal pellet use. The workforce is down to 570 from 800 people in eight years.

Part of Saldanha's production is a niche ultra thin rolled coil, which is normally produced in a far more expensive cold rolled process. It is this cost differential that Saldanha wants to increasingly tap into. About a quarter of its annual production is ultra thin steel.

It sells about 55% of its output to African countries, 30% to the nearby Duferco steel processing plant, which produces a range of products primarily for the export market, and the balance inland.

As part of the cost savings drive, more than $80/ton has been stripped out of the process. In January 2012, the indicative figures showed Saldanha to be the second cheapest steel plant in the ArcelorMittal group's global stable.

Mr Moodley said that "We can compete with China and India in West Africa. Our customers want kilometers of material not tonnages, so with the thinner steels we can sell more kilometers and it commands a USD 70 to USD 80 per tonne premium to the 2mm steel."

Mr Moodley says that Saldanha has begun talks with Eskom on securing a different pricing model for the 160MW it consumes. Saldanha is paying ZAR 600 million more a year on electricity than it did when it was commissioned in 1998. If Eskom raises tariffs to ZAR 1 per kWh it will add another ZAR 600 million.

Source - Business Day


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