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www.arcelormittalsa.com
ArcelorMittal South Africa Presentation to the PPC on Transport
March 2015
1
Overview of ArcelorMittal South Africa
• Largest steel producer on the African continent, with a capacity of 6,5 million tonnes of liquid steel per annum and an annual steel production of 5 million tonnes of liquid steel for flats and long products
• 87 years of technical expertise and alignment with international best practices, which has forged the organisation into a modern, most equipped, competitive and supplier of high quality products to the domestic and global markets
• Shipments into domestic market, Africa Overland (Botswana, Malawi, Zimbabwe, Zambia, Mozambique, Namibia) and Exports (EMEA)
• Biggest local steel employer, with over 14 800 direct employment
• Part of the ArcelorMittal’s Group, the largest steel producer in the world, employing 232000 people worldwide and with an industrial presence in 27 countries and business activities in 60 countries. The group is leader in all major global markets including Automotive, Construction, household appliance and packaging, with leading R&D and technology
• Through this association ArcelorMittal South Africa has access to world-class R&D, best industrial and management processes and procurement knowledge and international markets leverage to ensure the company remains at the cutting edge of the international steel industry
2
ArcelorMittal South Africa: the leading producer of primary steel, or
input materials for the merchants, fabricators, contractors
Vereeniging Works
• Gauteng Province
• 2 electric arc furnaces
• Seamless tubes, Profiles and
forged steel
• 0.4 mtpa
Newcastle Works • Kwa-Zulu Natal Province
• 1 blast furnace; 1 laddle furnace;
2 basic oxygen furnaces
• Wire rod, Profiles, Billet rebar, &
other
• 1.9 mtpa liquid steel capacity
Saldanha Works • Western Cape Province
• Corex, Midrex continuous process
• Hot rolled coil
• 1.25 mtpa
Vanderbijlpark Works • Gauteng province
• 2 blast furnaces; 3 basic oxygen
furnaces
• Slabs, plates, hot-rolled, cold-
rolled, electrogalvanised (EGL),
tinplate, colour coated
• 2.8 mtpa
Cokes and Chemicals • Pretoria, Newcastle &
Vandebijlpark
• Commercial coke production for
ferro-alloy industry; metallurgical
and steel by-products
beneficiation, including coal tar
3
ArcelorMittal South Africa: value creation model
Key: t = Tonnes kt = Kilotonnes TWh = Terawatt hour ML = Mega litres
Steelmaking process
Plate
Hot rolled coil
Blast furnace
Raw materials
Coiled rounds
Flats, rails, joists, rounds, angles,
billets and channels
Flats, reinforced bar, rounds, angles and
blooms
INPUTS
Natural capital
Raw materials consumed
2013 2014
Iron ore 6 659kt 6 092kt
Coal 4 245kt 4 718kt
Purchased
scrap 235kt 341kt
Fluxes 1 724kt 1 612kt
Energy
Electricity
purchased
(TWh)
3.67 3. 52
Water intake
Water intake
(ML) 17 682 18 150
Human and intellectual
capital
2013 2014
Employees* 9 016 8 817
Hired labour* 1 869 1 411
Service
contractors* 3 918 3 316
Training
spend R138m R151m
Salaries and
wages
R3
408m
R3
764m
*Average for year
Financial capital
2013 2014
Capital
expenditure
R1
569m
R2
798m
Manufactured
capital 2013 2014
Flat steel products 2 771kt 2 981kt
Domestic market 2 003kt 1 951kt
Export market 768kt 1 030kt
Long steel products 1 459kt 1 259kt
Domestic market 1 123kt 1 051kt
Export market 336kt 208kt
Coke and chemicals
Market coke 545kt 466t
Tar 109kt 110kt
Other 994kt 1 323kt
Financial capital
Shareholders/Investors
/
Employees
2013 2014
Revenue R32
421m
R34
852m
EBITDA R1 768m R1 258m
Profit from operations R47m (R301m)
EBITDA margin 5.5% 3.6%
Human capital
Employees/Contractors 2013 2014
Safety : LTIFR 0.56 0.58
Safety : Fatalities 0 4
Social capital Local communities/suppliers/local
business
2013 2014
Social-economic
development R37.4m R18.5m
Procurement spend R25 000m R26 786m
Direct GDP 1% 1%
Indirect GDP
contribution
R11 000m
(0.4%)
R11 000m
(0.4%)
Economic value
contribution R32 421m R34 852m
Taxes contributed R1 500m R870m
Procurement spend -
QSE & EME R2 000m R3 100m
Blast furnace
Electric arc
furnace
Caster
Billet mill
Hot strip mill
Revenue 2013 2014
Domestic R25 174m R26 125m
Export R7 247m R8 727m
Our markets, our customers, our world
AMSA exports 2013 2014
Total 1 104kt 1 238kt
Sub-Sahara 82% 77%
• SADC 29% 25%
• East Africa 53% 51%
• West Africa 16% 21%
Far East 7% 11%
Middle East 8% 6%
Other 3% 6%
The real cost of
steel ** (2014)
Steel
content in
product
weight
Steel input
material
cost as %
of price
Shipping container 98% 65%
Beverage can 98% 30%
Washing machine 50% 12%
VW Polo 48% 3%
Isuzu KB DC 51% 2%
Ford Ranger DC 49% 2%
**AMSA estimates
Domestic
market National**
2014 (2013)
AMSA
2014 (2013)
Sectorial Industries 4 900kt (5
400kt)
3 002kt (3
126kt)
Construction 56% (56%) 60% (60%)
Metal products 24% (22%) 20% (20%)
Automotive &
assembly 12% (13%) 11% (11%)
Mining & agriculture 8% (9%) 9% (9%)
OUTPUTS
4
South Africa crude steel production around 6.5 million
tons
5
ArcelorMittal South Africa steel production decreased by
500kt to 4.5mt in 2014,compared to 5mt in 2013
7,033 7,261 7,055
6,375 5,774
5,307 5,674 5,453
5,090 5,096 4,518
6,182 6,054
0
1000
2000
3000
4000
5000
6000
7000
8000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e
Liquid steel production
3,879 3,485
4,400 4,422 4,375
3,072 3,414 3,507 3,336
3,126 3,512
3,725
2,344 2,745
1,794 1,397
,714
1,401 1,627
1,201 1,286 1,104
2,020 1,784
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e
Domestic
Export
Shipments
4,240
Local+exp
6
ArcelorMittal South Africa market share around 60%
• SA total consumption contracted by 9% in 2014 from 5.4mt to 4.9mt mainly due to strikes
• AMSA sales into the domestic market decreased 3% with flat dropping 10% and long reducing 4%
• Increase in AMSA market share estimated at about 62% with flats gaining 5 points and longs 3 points e
Source : SAISI actuals up to 2008, thereafter AMSA estimates
Ap
pa
rent co
nsu
mptio
n
(00
0t)
AM
SA
ma
rket s
ha
re (%
)
7
SA has experienced increasing imports of primary and finished
steel products from 2012, currently declining from 18% to
around 15% due to weakened rand and replacement initiatives
17%
0%
5%
10%
15%
20%
25%
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 2013 2014
Primary % of consumption Primary steel Finished steel
Source : SAISI actuals up to 2008, thereafter AMSA estimates
Imp
ort
s (
00
0t)
Prim
ary
% o
f ap
pa
ren
t co
nsu
mptio
n
8
Enabler of S.A. development
through supply of steel
Catalyst for change in South Africa
Impact on local communities
Employer, job creator and
skills developer
Economic growth engine
ArcelorMittal Socio-Economic footprint in South Africa
Economic Social Environmental
Note: All figures as of 2014 with 2013 in brackets (except environment) Source: AMSA, BCG analysis
68% (70%) of new recruits employed locally within
plants’ location
R18.5m (R37.4m) invested in local communities in 2014
through CSI programmes
15 (40) local community organisations engaged in
2014, with outcomes documented
Utilised 1 123 (659) vendors located in close
proximity to our plants with total spend of R4.8bn
(R5.9bn)
4.5mt (5.1mt) of liquid steel produced supplying just over 60% of South African steel supporting
key domestic industries
3.5 formal jobs created economy-wide for every R1m spent by AMSA
Total export rebates of R53m (R213m) paid out by AMSA in 2014
R26bn (R25bn) value addition representing almost 1% (0.9%) in
direct GDP
R0.9bn (R1.5bn) contribution to the fiscus in various taxes and rates
R46.8m (R42m) invested in technical training; Multiple global steel
innovations introduced to South Africa
Over 13 500 (14 800) people in direct
employment due to AMSA
Over 94 912 (120 000) training seats provided with R151m (R138m)
invested in training
Mostly positive Positive and negative Mostly negative
R3.1bn (R2.0bn) in procurement spend on
QSE and EME
11% (11%) female employment, 59% (57%)
HDSA employment and 75% (75%) unionisation
9 701 (8 819) received health & safety and
598 (1 667) received anti-corruption training
Open disclosure of financial,
environmental and social indicators
AMSA at B-BBEE
Level 7 (7)
Voluntary participant in
several debates at national level
R27.8bn (R25bn) spent on over 3 500 (2 000)
suppliers, with more emphasis on supplier
development
R8.7bn (R7.2bn) export revenue generated into the
domestic economy
Environmental footprint
15.2 m tons Scope 1 and
2 of CO2 emitted
1.65 m tons by-products disposed of ;
290 ha of land under restoration
48 % improvement in water abstraction since
2005. Continuously improving effluents
management
125 PJ of energy 17.5 bn litres of water abstracted and 13.4 m tons of raw material
consumed
2.5 kt of dust and 23.5 kt of SO2 emissions
per annum
1. Estimated at average 57% of domestic market share using estimated consumption data from World Steel Association Year Book 2013 2. Estimated by the Automotive Industry Export Council, figures for 2012
Source: StatsSA, Automotive Industry Export Council, World Steel Association Year Book 2013, AMSA, BCG analysis
100
80
60
40
20
0
% of AMSA production
2013
29%
71%
...meaning AMSA indirectly accounts for nearly 10% of SA GDP and 900k jobs
Automotive
Construction
Energy, Mining,
Chemicals & Water
71% of AMSA steel used in key industrial sectors...
9.7% of GDP ~900 000 formal jobs
...which together account for 17% of GDP and 1.6m jobs
17%7%
7%
3%
0
10
20
% of GDP
Total Automotive2 Energy Mining Water
Construction
1 568200548
820
0
1 000
2 000
Automotive2
# of employees( '000)
Construction Total
57%1 AMSA share of
domestic steel market
Energy Mining Water
With 57% of domestic market, AMSA indirectly support nearly
10% of SA GDP and nearly 1m jobs
9
10
• AMSA experienced continuous drop in volumes due to market movements
• Decrease and cyclical effects in market consumption since the world cup events to a market around +/- 5mt, but a market which could regain its dynamism with the SIPs
• Increased competition and imports
• AMSA had to contend with margin-shrinking effects of rising inputs costs
• Coking coal: cost/ton increased by 92% over the past 2Y
• Electricity: increase of 153% in the tariff over the past 5Y and 118% in costs even though AMSA’s production and energy consumption has decreased significantly
• Natural gas: cost has increased effectively by 105% since 2008 even though AMSA is being more energy efficient
• Freight: costs have escalated by 61% in the last 5Y without commensurate productivity
• Manpower: despite crisis and manufacturing sector shedding close to a million job, AMSA has maintained employment and absorbed increase in Manpower costs (without commensurate productivity) above economic growth and above inflation. On R/ton basis, Manpower has increased by over 30% since 2008
• AMSA’s ambition
• Increase production level to capacity, ensure maximum local service and Customer satisfaction
• Decrease costs
• Improve manufacturing capability, environment management and reliability
• Strengthen government relations and compliance
• Support infrastructure programs (SIPs)
AMSA experiencing severe challenges since the past
4 years
11
Infrastructure spending (CAPEX) are catalysts for growth of steel
consumption, but with its slow down, it is suggested to localise as
much as possible
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
R ,0
R 100,000
R 200,000
R 300,000
R 400,000
R 500,000
R 600,000
R 700,000
R 800,000
R 900,000
R 1000,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
kt
Rm
Project Value & Apparent Consumption Data 1993-2014
Private Sector General Government
Public Corporations Actual Capex @ Constant 2013 Prices
Apparent Steel Consumption 4 per. Mov. Avg. (Apparent Steel Consumption)
Source: National CAPEX 2014, Nedbank * 2014: Value of announced projects in the first Half of the year, ANNUALISED
Apart from 2010 Soccer infrastructure, demand coming from projects like Gautrain
TCTA water pipeline
Madupi & Kusile plants
12
AMSA has defined the SIPs as key priorities in its strategy and
collaborate with public / private stakeholders to ensure mutual
local successes
Typical interventions into the infrastructure programs to localise them:
Collaboration during
feasibility, scoping,
planning
• Engagement in bilateral discussions with stakeholders amongst the supply chain
(public/private), from ownership and lobbying to execution
• Technical assistance on matters related to steel (global & local)
R&D • Review of specification required for projects, global benchmark vs. local equivalence
• Co. development (with industry) of new local products matching specifications
CAPEX • Investment in technology and equipment when required to manufacture locally
Commercial gesture • Project pricing and rebate scheme awarded to the industry to facilitate & support projects
Some key achievements:
• AMSA’s steel used in multiple current infrastructure programmes (Energy, Water, Transport, ICT, Oil & Gas)
• Transport: participated in developing local products to supply steel for PRASA coaches. Working on providing local capabilities for material required for Transnet locomotives, wagons and tankers
• Renewables - Solar: AMSA one of the catalyst of localisation of Solar systems, developed special qualities during R&D period and awarded rebates to support the projects. Despatched over 60% of the steel required
• Renewables - Wind: Tower for R1 and R2 imported, AMSA developed local products and invested R20m+ in local equipment to localise materials for DCD and Gestamp to be able to produce towers locally. AMSA awarded price of “Best Contributor to localisation of Wind towers” by SAWEA in 2014
• Water: improved pipeline material qualities through research and collaboration with pipe mills to limit imports
13
In Conclusion
• AMSA is main user of transport infrastructure for its raw materials and finished
products
• with its position and expertise is well positioned to facilitate steel supply through the
interaction with private/public stakeholders participating in projects
• Positioned to support the local industry and thereby facilitating beneficiation of iron
ore
• Our product research & development capability enables us to partner with our
customers for innovation
• Our footprint supports job creation and economic growth
• Cooperation in protecting local market from unfair competition (business and
government)
• AMSA has good experience in infrastructure projects (and well positioned to enable
the downstream and construction sector)
Thank you 14
,0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Actual 5y Trend from 1994 3y Trend from 1994 AMSA forecast
1.28%pa
1.73%pa
South Africa apparent steel consumption contracted to 5.4mt in 2014, down 9% from 4.9mt in 2013
Source: SAISI 2014
Steel manufacture supports NDP and government industrial
policy on beneficiation, through creating significant value add,
employment and skills
10 000
20 000
30 000
40 000
0
Value (R m)
20 112
Value of finished steel
(AMSA Rev.)2
32 374
AMSA steel value
add
9 253
Coal (Export Parity)1
3 009
Iron ore (Export Parity)1
1. Raw materials considered are iron ore and coking coal (excludes limestone and dolomite), export parity price as per 2013 average estimates as reported by IMF (Iron Ore) and World Bank (South African export coal) 2. AMSA Annual Report
Source: Steel Index at IMF, World Bank, AMSA, BCG analysis
AMSA will enable NDP by creating value through converting raw material
to steel
AMSA inputs of iron ore and coal if exported would be worth R13.27 bn at export parity prices
However, by converting raw material to steel, AMSA adds a further R20 bn of value by creating direct and indirect local jobs; operating expenditure on electricity, logistics, capital expenditure and profit
NDP Targets include GDP growth, new jobs and skills development
By 2030, SA's National Development Plan targets:
Grow GDP by 2.7 times at a rate of 5.4 % pa
• Increase capital expenditure to 30 % of GDP from current 17 %
• Increase public infrastructure spend from 8 % to 10 % of GDP
Create 11m new jobs
• Encourage training and skills development
• Expand innovation output through research and development
• Ability to expand capacity for further mineral beneficiation
AMSA will be a key enabler of NDP targets, creating value add through conversion of raw material to steel
16
AMSA activities support implementation of specific NDP targets
across all six pillars
Key targets of plan Source of
Impact
Employer, job creator and skills developer
Impact on local communities
Economic growth engine
1
2
3
AMSA contribution to plan
• Increase GDP by 2.7 times by 2030
• Increase GDP growth to 5.4 %
• Promoting exports and competitiveness. Exports to grow by 6% a year to 2030
• Increase number of jobs by 61 %. 11 m more jobs by 2030
• Reduce unemployment to 6 %.
• Encourage training and skills development
• Produce 30 000 artisans a year
• More people living closer to their places of work
• Increase university enrolment by 70 %
• Provide 1m learning opportunities through community educ.
• Increase students eligible for maths and science degrees
• Expand innovation output by increasing research and development
• Upgrade all informal settlements on suitable land by 2030.
• Universal access to basic services, health care, education
• Universal access to clean and potable water
• Electricity access to at least 90 % of households
• Improving public services and spaces, integrated housing and sports facilities
• Safety audits done for all communities
• Eradicate school infrastructure backlog by 2030
• AMSA contributes 1.3 % of GDP
• AMSA revenue not growing significantly
• Export of R7.3 bn in 2012
• Provides employment to 14 874 people
• No increase in no. of people employed
• Spent R138 m on training in 2013
• Training to produce artisans >750 artisans
• 70 % employed locally in 2013
• 137 university bursaries in 2013
• Local community educ. via science centres
• Promotes science via science centres
• Introduction of technical innovations, with lighter, stronger and env. friendly steel • Steel required for construction of houses
• Built 2 schools and clinic for community
• R40M for community development
• Steel for construction of electric. distribution
• Built schools, science centres and re-roofing of houses in local communities
• Safety audits for employees only
• Built 2 schools for community
National Development Plan (NDP)
• Impact on GDP
• Net Exports
• Direct Employment
• Training
• Investment in Community cap devt
• Devt into skilled postions
• Investment in Innovation
• Human settlement devt
• New schools built
Source: National Development Plan, BCG analysis 17
Key targets of plan Source of
Impact
Environmental footprint
Enabler of S.A. development through supply of steel
Catalyst for change in
South Africa
5
6
AMSA contribution to plan
• Reduce carbon footprint
• Ensure compliance with environmental regulations
• Investment in sustainable tech., rehabilitation
• Reduce water demand by 15 % below business as usual
• By 2030, carbon price should be entrenched
• Zero emission building standards by 2030
• Reductions in the total volume of waste disposed to landfill
• Increase capital expenditure to 30 % of GDP
• Increase public infrastruc. spending to 10 % of GDP
• Invest in large infrastructure projects in Health, Education, Energy and Transport
• Increase Durban port capacity from 3 m to 20 m containers
• Better quality public transport.
• Effective redress by creating employment equity
• Clear targets set for expanding economic participation
• Reduce prevalence of non-communicable chronic diseases
• Reduce injury, accidents and violence by 50 %
• Deploy primary healthcare teams to provide care
• A set of indicators for natural resources and publication of annual reports
• Corruption is reported on and monitored
• CO2 per ton of steel unchanged
• Some violations in 2012/2013
• Reduced water abstraction ~40 % in 8 yrs
• Do not support carbon pricing for steel
• Currently, no plan for 0 emission standards
• Recycled 0.97 m tons of scrap in 2013
• Provides 57 % of domestic steel
• Steel from AMSA critical for NDP infrastructure projects
• 57 % HDSA employed, no sig. increase
• Targets to reflect national racial distrib.
• Occupational disease frequency not significantly reduced
• Injury rate reduced >50 % over last 2 yrs
• Sponsored clinic in local community
• Publishes award winning annual sustainability report with env. indicators
• Corrupt practices monitored and reported
National Development Plan (NDP)
4 • Total CO2
• Env Mgmt & Std.
• CO2 equiv. reduction
• Total water withdrawal
• CO2 emissions reduction
• Recycled material use
• Total steel contribution
• Employment equity
• Safety & Health hazards
• Employee Wellness
• External reporting
• Anti-corruption
Source: National Development Plan, BCG analysis 18
AMSA activities support implementation of specific NDP targets
across all six pillars
AMSA supported downstream industry with investment over
R1.5bn over the past 5 years
19
Initiative 2009 2010 2011 2012 2013 Comments
Value Added Export
Rebates 189 258 293 237 229 ArcelorMittal-specific additional Value Added Export incentive.
Strategic Rebates 22 1 2 26 34 Projects in process or as required by industry like, for instance,
transport, energy / power transmission, water, oil & gas, etc.
COSM levy 36 46 55 28 66 National Value Added Export Rebate administered by SAISI -
ArcelorMittal contribution to national fund.
Total 247 305 350 291 329 Total contribution to RSA Domestic downstream manufacturing.
Excluding Steel Association contributions to the value of R5.0m pa.
• AMSA has designed and implemented a number of direct and indirect initiatives to protect
and develop the downstream manufacturing industry over a period of time