Mittal suffers loss after furnace fails

Conditions in struggling South African steel industry worsen over the past quarter

Friday, November04, 2011

ArcelorMittal SA reported a R460m headline loss for the third quarter ended September, following the failure of the blast furnace system at its Newcastle works in KwaZulu-Natal, and a sharp rise in input costs.

This compares with headline earnings of R473m for the previous quarter, and R68m for the same period last year.

The group also said yesterday that operating conditions in the steel industry had deteriorated sharply over the past quarter, with the weaker trend in SA’s economy having a big effect on major steel consumers. Strike s in the sector in July hit deliveries, with customers forced to delay orders.

"It has been a difficult and challenging quarter," CEO Nonkululeko Nyembezi-Heita said yesterday. "The Newcastle incident resulted in a substantial loss of production with a concomitant effect on our quarterly results."

She said to ease the effect on customers, 240000 tons of steel was secured in SA and globally, from ArcelorMittal Group mills, and dispatched from mid-October. This still left the market short, with a knock-on effect in the mainstay building and construction sector.

Most of ArcelorMittal SA’s key drivers exhibited stable to negative trends, with raw material prices rising further, and electricity costs soaring 25%. But the firm said strong growth was experienced in Kenya and Zambia, with increased activity in the construction and mining sectors.

"Management (said) at the half-year results that the third quarter would be tough, but the Newcastle furnace issues resulted in a much poorer result," Rubin Renecke, equity analyst at Kagiso Asset Management, said yesterday. "Globally, steel demand remains sluggish ... (but) the weaker rand against the dollar should be positive for local steel pricing going forward."

Year on year, revenue in the quarter rose 5% to R7,6bn, following an 11% increase in average net realised prices, but was considerably down from R8,8bn in the preceding June quarter. Overall steel sales were flat at 1,1-million tons, with long steel products falling by 10%, while flat steel products rose 4%.

Revenue from ArcelorMittal SA’s coke and chemicals division declined 38%, following a 40% decline in commercial coke sales and an 11% drop in average net realised prices. Sales were also hampered by weaker seasonal demand from the ferro-alloy industry due to high winter electricity tariffs, and the poor state of the stainless steel industry.

Liquid steel production fell 17% to 1,2-million tons in the quarter, mainly as a result of the structural failure at Newcastle.

(sourced BusinessDay)

ArcelorMittal S.Africa furnace repair needs 3 months

Aug12, 2011 |By Thomson Reuters

JOHANNESBURG (Reuters) - ArcelorMittal South Africa, a unit of the world's top steelmaker, said on Friday the failure of the furnace at its Newcastle plant would result in a loss of 400,000 tonnes in output and the financial impact would be "substantial".

It also said in a statement that the blast furnace would take about three months to repair.

"ArcelorMittal South Africa management is in the process of exploring options to augment the supply to meet the domestic customer requirements for the next three months," it said.

"The financial impact is estimated to be substantial considering the potential sales volume loss. Insurers were notified of the incident and a claim will be submitted once the actual repair costs and consequential losses are finalised," it added.

The company had said on Wednesday that the furnace at its gas cleaning plant had failed and the dust catcher had partially collapsed.

The company's outlook is already subdued.

Higher input costs and a strong rand led to a 63 percent drop in the company's first-half profit and the steelmaker forecast a difficult third-quarter, partially due to a recent strike over wages and a planned maintenance shutdown at one of its plants.

ArcelorMittal SA to resolve steel supply delay soon - Report

Sunday, 13 Feb 2011

Bloomberg reported that ArcelorMittal South Africa Limited said that delays in supply caused by the shutdown of its Newcastle blast furnace will be resolved within the next two months.

ArcelorMittal SA said that the furnace, which developed cold conditions in early December 2010, was restarted in January 2011 and is currently operating at capacity.

It added that "We are in the process of working closely with customers to address the urgent supply issues and we are hopeful of being back to normal supply levels for domestic demand in the next two months."

ArcelorMittal South Africa posted a fourth quarter loss excluding one time items of ZAR 495 million as compared with a profit of ZAR 469 million a year earlier. The company returned to profit over the full year.
(Sourced:bloomberg.net)

Sourth Africa faces delay threat to projects over shortage of steel rebar

Sunday, 13 Feb 2011

It is reported that large building and construction projects in South Africa could grind to a halt within weeks because of a shortage of rebar. The shortage was caused by a breakdown last month of ArcelorMittal’s main furnace in Newcastle in KwaZulu Natal.

The South African Reinforced Concrete Engineers Association said that the breakdown meant there would not be any rebar available this month, possibly halting building and construction projects in SA, and resulting in delays and additional costs. This comes at a time when the construction industry is reeling from the effects of the global economic recession and the spending hangover after last year’s Soccer World Cup. While there was huge state investment in fixed capital last year, the government has been slow since then to issue new tenders and tardy in paying for work done. The private sector is complaining bitterly.

The association said that the shortage had been made worse by the closure last year of the unprofitable reinforcing steel rolling mill, Cape Town Iron & Steel Works, which had been a large supplier of the steel.

Mr Rod Mountford director of the association said in a statement that "Members of the association are reporting serious shortages of rebar and mesh rod, which has been totally unforeseen and beyond their control."

Mr Mountford said that "The imported product is more expensive than locally sourced reinforcement. Individual importers of rebar will also have to ensure that the quality of the steel complies with South African standards and specifications. Steel mills have already been notified there are price increases due this month and in March 2011."

SA's two remaining suppliers Scaw Metals and the Davsteel division of Cape Gate, were unable to provide construction firms with their required volumes, leaving a two to three month lead time for imported rebar. (sourced:businessday.co.za)

Analysis: Eskom pushing for coal price controls, mining regulation

February04, 2011, 12:38:32

South Africa; The adage “taking coals to Newcastle” connotes an exercise in futility – if not downright stupidity. Apparent steps by Eskom and the government to control and regulate the coal mining industry in South Africa exemplify what the adage is about. By CHRIS YELLAND.

In recent months and at various venues Eskom has been punting the view that a new dispensation and enabling environment is required for the utility to secure the cheap and abundant supplies of coal needed for its current and future net of coal-fired power stations.

When pressed for details, Eskom officials become a little coy. But stripping away the euphemisms, what Eskom is saying is that, in the light of higher global demand and world market prices for even the low-grade coal used in Eskom power stations, the utility is having difficulty matching these prices and contracting on a voluntary basis with the coal miners to secure medium and long-term coal supplies.

Eskom is, therefore, seeking heavy-handed new mechanisms to ensure its own coal needs are met, and is suggesting policy options such as price controls, licensing, export quotas and restrictions on the export of the grade of coal it uses, and increased powers for the minister to intervene in the interests of domestic energy security.

In short, instead of pricing based on supply and demand and voluntary long-term contract prices, Eskom is pushing for government-regulated pricing that provides a “fair return for the capital and skills that they [the coal miners] contribute, linked to the cost of capital and the risk that they assume” – a kind of “cost plus” methodology.

Eskom’s suggestions for domestic coal price controls and the regulation of the coal mining industry are based on the premise that abundant, cheap coal for the generation of electricity in South Africa is good for Eskom, for commerce and industry, for the economy and the country and ultimately for the consumer.

Eskom claims increases in the cost of coal will lead to an increased price of electricity, which has a negative impact on GDP and economic growth and, therefore, a negative impact on employment.

Of course, this is simplistic nonsense, as the following two examples illustrate.

Firstly, in the late 1980s, 1990s and early 2000s, when Eskom’s price of electricity was by far the lowest in the world, South Africa’s economic growth rate was low and its rate of unemployment was very high.

Secondly, the artificially low Eskom electricity price enjoyed by BHP Billiton’s Hillside, Bayside and Mozal aluminium smelters in recent years, which was significantly below the cost of electricity production, did not enhance the country’s economic growth or reduce the high rate of unemployment in South Africa.

On the contrary, in response to secret, low electricity price deals with Eskom, BHP Billiton imported bauxite to South Africa by ship, and exported cheap South African electricity around the world in the form of aluminium ingots. The fact that this was done at a time of electricity shortages and load-shedding in South Africa inhibited economic growth and caused job losses.

Don’t blame BHP Billiton though. Blame those whose economic policy it was to drive energy-intensive economic growth by selling a precious and highly-valued energy resource at artificially low prices, while not understanding the long-term consequences.

The reality is that interference with voluntary contracting between users and producers, and with well-established market pricing mechanisms, leads to market distortions with serious unintended consequences. There is indeed adequate competition in the coal mining and supply sector, and even Eskom acknowledges there is a vibrant and diverse coal mining industry in South Africa. A sound basis for coal price regulation, namely to prevent monopoly abuse and price collusion by coal producers, does not exist.

In the current environment, one would argue that price controls with artificially low coal prices are bad for Eskom, industry, the economy and the country. Coal as the primary energy source represents the low-cost, high-CO2 emission, business-as-usual scenario that has led to low economic growth and generation capacity shortages.

Artificially low, regulated coal prices to Eskom will maintain our dependence on a non-renewable, carbon-based energy source, entrench uncompetitive, energy-guzzling smoke-stack industries, encourage high energy-intensity industries when South Africa should be moving towards lower energy-intensity economic activities, discourage energy efficiency, inhibit private investment in power generation when Eskom and the government are cash strapped and establish a time when an inevitable return to real prices will come as a deep shock to the productive economy and the consumer.

In addition, artificially low, regulated coal prices to Eskom will prejudice the emergence of independent power producers, regional power initiatives and cleaner, alternative energy sources, including hydro, nuclear, bio-waste, industrial co-generation, wind and solar, and will perpetuate the uneven playing fields that the coal-dominated monopoly has enjoyed up to now.

Eskom and South Africa’s continued dependency on coal is like an addictive drug that holds us down and will come back to haunt us. I suggest government and Eskom allow coal prices to rise (or fall) to their true values based on supply and demand and voluntary contracts between the buyer and sellers. Rising coal prices will provide just the signals needed to encourage the move to alternative, cleaner energy sources. Government still has the option to impose royalties, levies and taxes on the coal mining companies, and it should use this option in preference to price controls.

The treasury has recently issued a carbon tax discussion paper for comment and response by 28 February. Deloitte has estimated the proposed carbon tax would cost Eskom some R37 billion a year based on a tax rate of R165/ton of CO2 emitted, which is also in line with the tax rate used in the draft integrated resource plan for electricity of 2010. This additional cost would be passed through to Eskom’s customers in the form of increased electricity prices.

It would appear quite illogical and contradictory to effectively subsidise the price of electricity by providing Eskom with artificially low, non-market related coal prices, and then impose a carbon tax on its coal consumption. On the one hand coal price controls would be encouraging coal usage by Eskom, while on the other hand the carbon tax would be discouraging such usage. Economic policies need to be clear, sound and non-contradictory.

The world is moving to reduce tax carbon emissions on the basis that users should pay the full price of burning coal, including the cost of externalities. Regulating the coal price to maintain artificially low coal prices for Eskom is counterproductive, and effectively subsidises and encourages its continued coal usage while prejudicing cleaner energy options – the very opposite of the direction we should be taking
(sourced:The Daily Maverick)

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Steam coal price may reach USD 150 a tonne

According to Credit Suisse Group AG, power station coal may rise to USD 150 a tonne in the coming weeks, driven by extreme weather conditions, before declining in the year.
Mr Joachim Azria a New York based analyst with Credit Suisse said that “The unexpected cold weather so far this season has taken a toll on global energy inventories and reset energy prices to varying degrees. We expect coal prices to move above USD 150 in coming weeks and possibly higher if there are further significant disruptions to supply.”
Mr Azria said that prices first rose because of a colder than normal winter in the Northern Hemisphere, prompting restocking by countries including China. Further price increases were supported by supply fears because of heavy rains in Indonesia, Australia and Colombia, as well as floods in Queensland state.
According to IHS McCloskey, power station coal at the port of Newcastle in Australia’s New South Wales, the benchmark for Asia, jumped 4.5% to USD 131.80 a tonne in the week ended January 7th 2011.
Sourced from Bloomberg

Coal at 28-Month High to Beat Oil, Gas on Australia Floods: Energy Markets

Source: Bloomberg, by Dinakar Sethuraman and Ben Sharples - Jan 13, 2011

Coal for producing power may beat oil and natural gas this year as disruptions from Australia to South Africa drive prices for the fuel to a 28-month high.

Thermal coal may climb about 14 percent to $150 a metric ton in coming weeks, while increased stockpiles limit gains for oil and natural gas, Joachim Azria, a New York-based analyst at Credit Suisse Group AG, said in a Jan. 10 report. Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd., said on Jan. 4 coal may advance as much as 15 percent. Prices at the Australian port of Newcastle were at $131.80 a ton on Jan. 7, the highest since September 2008, according to IHS McCloskey data.
“There’s definitely more possible upside in the coal market at the moment than there is in the oil market,” Ben Westmore, an energy economist at National Australia Bank Ltd. in Melbourne, said in a Jan. 12 interview.
Spot prices at Newcastle, the world’s biggest coal-export facility, have jumped 20 percent in less than six weeks, according to Petersfield, England-based McCloskey. The worst floods in Queensland state in 50 years shut mines and closed transport lines, disrupting supplies. Coal shipped via South Africa’s Richards Bay, Africa’s largest terminal for the fuel, gained about 18 percent. Oil in New York rose 5.5 percent in the same period, while natural gas added 3.3 percent.
“Coal should continue to outperform oil and gas in 2011,” said Azria, who estimates as much as 2 million tons of thermal supplies have been disrupted by the Australian floods.
Asian Economies
Australia & New Zealand Banking Group Ltd. increased its spot thermal coal price forecast to $140 a ton, from $120 a ton, for the three months to March 31, Mark Pervan, head of commodity research in Melbourne, said in a note on Jan. 7.
Demand for coal is growing faster than oil and gas as China and India boost imports to feed economies that are outpacing the rest of the world. China, which relies on the fuel for 70 percent of its energy, may increase overseas purchases by 30 percent this year, according to Lau, while imports to India may double, India Coal Market Watch said. Coal will remain the world’s most-used fuel for power generation through 2035, the International Energy Agency said in November.
Prices at Newcastle jumped 43 percent last year, while oil futures in New York gained 15 percent. Natural gas dropped 21 percent.
While coal is rising, the fuel is still more than 30 percent below the record set more than two years ago. Newcastle coal traded at $192.50 a ton in July 2008 as floods hampered supplies, according to McCloskey data on Bloomberg.
Disaster Zone
An area bigger than Texas and California covering more than 75 percent of Australia’s Queensland state has been declared a disaster zone. Fifteen people are dead and 61 missing after a flash flood smashed through Toowoomba on Jan. 10, taking the total killed to 26 since the deluge started in November. Brisbane, Australia’s third-largest city, was inundated with muddy water, flooding 15,000 properties, smashing roads and shuttering the city center.
The flooding has cut coal output by about 4.5 million tons since the start of December, about 3 million tons of which is coking coal, used by steelmakers, and the rest thermal coal, according to Colin Hamilton, a London-based analyst at Macquarie Group Ltd. The state exports about 50 million tons of thermal coal a year, according to Macquarie.
“It was a perfect storm for coal, with cold weather in the northern hemisphere boosting demand and excessive rainfall first in Colombia, Indonesia and now in Australia creating vast shortfalls in supply,” Amrita Sen, a London-based analyst for Barclays Plc, said in an e-mail on Jan. 10.
World’s Biggest Supplier
Indonesia, the world’s biggest supplier of thermal coal, increased the reference price for the fuel by 8.7 percent in January to $112.4 a ton, the Directorate General of Coal and Minerals said on its website. Prices have climbed 25 percent since September.
Coal shipped through Richards Bay was disrupted last month by derailments that depleted stockpiles at the terminal, threatening to curtail first-quarter exports, port Chief Executive Officer Raymond Chirwa said on Jan. 4. India bought almost a third of Richards Bay’s exports last year.
Prices at the port were at $126.39 a ton on Jan. 7, after rising 60 percent last year.
Asian Driver
“You have strong underlying fundamentals for coal,” said Emmanuel Fages, a Paris-based analyst at Societe Generale SA. “Bottlenecks remain on the supply side, so Asia is sucking up resources even more from traditional suppliers of the West, like Colombia or South Africa. You are bound see price increases over the medium term.”
China’s coal imports may rise to 210 million tons in 2011 from an estimated 166 million last year, according to Lau. The country, which became a net importer of the fuel for the first time in 2009, boosted overseas purchases by 35 percent through November 2010, according to government data.
While oil imports to China will continue to increase this year, they may not match last year’s 17 percent pace, as growth in refining capacity slows, Lawrence Eagles, a New York-based analyst with JPMorgan Chase & Co., said in a Jan. 10 note.
India may double imports of thermal coal to 104 million tons in the year ending March 2012, according to Coal Minister Sriprakash Jaiswal. That compares with 3 percent growth in oil consumption, according to the Paris-based IEA.
“Long-term fundamentals for coal are more robust than for oil or gas, because the price increases are really driven by speculative expectations at present for oil and gas,” Fages said. If growth slows in China, it would take only about a month for oil and gas “to come down to much lower levels,” he said.
Reporter:Dinakar Sethuraman in Singapore at dinakar@bloomberg.net

Coal, Australian thermal coal Daily Price

Coal, Australian thermal coal Daily Price : 129.90

Description: Coal, Australian thermal coal, 12000- btu/pound, less than 1% sulfur, 14% ash, FOB Newcastle/Port Kembla, US$ per metric tonne

Unit: US Dollars per Metric Ton

As of: Friday, January 07, 2011, Source: globalCOAL

Month Value

Dec 2005 40.96

Jan 2006 46.27

Feb 2006 51.11

Mar 2006 53.30

Apr 2006 56.65

May 2006 56.36

Jun 2006 56.12

Jul 2006 56.52

Aug 2006 54.58

Sep 2006 50.46

Oct 2006 47.20

Nov 2006 49.29

Dec 2006 53.30

Jan 2007 54.95

Feb 2007 56.68

Mar 2007 59.34

Apr 2007 60.13

May 2007 60.00

Jun 2007 66.00

Jul 2007 72.12

Aug 2007 74.30

Sep 2007 73.33

Oct 2007 80.15

Nov 2007 90.64

Dec 2007 97.50

Jan 2008 98.30

Feb 2008 141.43

Mar 2008 126.70

Apr 2008 131.79

May 2008 142.71

Jun 2008 171.16

Jul 2008 192.86

Aug 2008 169.71

Sep 2008 160.71

Oct 2008 115.71

Nov 2008 98.84

Dec 2008 84.27

Jan 2009 85.71

Feb 2009 80.76

Mar 2009 65.36

Apr 2009 68.10

May 2009 69.11

Jun 2009 76.48

Jul 2009 79.07

Aug 2009 77.68

Sep 2009 72.47

Oct 2009 76.15

Nov 2009 84.43

Dec 2009 89.04

Jan 2010 103.93

Feb 2010 100.92

Mar 2010 101.12

Apr 2010 107.30

May 2010 107.28

Jun 2010 105.20

Jul 2010 102.84

Aug 2010 96.19

Sep 2010 101.66

Oct 2010 104.41

Nov 2010 114.81

Dec 2010 123.21

Jan 2011 129.91 * as on 07 Jan'2011

As of: Friday, January 07, 2011, Source: globalCOAL