Eskom load curtailment staggers another vital sector in South Africa

Steel manufacturer ArcelorMittal South Africa is the latest major listed company to report a serious drop in earnings in the first six months of 2023, citing load curtailment as a serious irritation.

Earlier this year, ArcelorMittal said that were it not for load shedding and Transnet’s unreliable rail infrastructure, the outlook for the first half of 2023 should have improved from a difficult close in 2022.

Unsustainable price-cost pressures and positive movements in international steel prices at the start of the year led to hope within the group.

However, despite the international trading environment in the first of the year benefitting from de-stocking and less painful energy prices, the local environment was affected by load shedding, high inflation, high interest rates, and mixed growth in key steel-consuming sectors – hurting already low levels of consumer confidence.

“The softness of the market amidst the unprecedented severity of the electricity load shedding in the last six months, was very much underestimated, which in turn affected the response time with which production could be adjusted in a responsible and well-considered manner,” the group said,

“Building and maintaining any semblance of operating rhythm, which is an absolute necessity in running a continuous, integrated steel making process in a cost-aware manner, proved especially problematic.”

Despite crude steel production increasing by 29% from 1.05 million tonnes in H1 2022 to 1.36 million tonnes for the H1 2023, the group said that its commercial coke production dropped by 85% to 9,000 tonnes, with sales volumes also down by 83%.

It added that load curtailment led to a highly disruptive stop-start operating practice.

Overall, the group saw its revenue decline from R22.17 billion in H1 2022 to R21.04 billion in H1 2023.

The group also saw a Headline loss of R448 million (2022 H1: R3 025 million profit) and declared no dividend for the period.

Below are some of the key financial statistics for the group:

Load curtailment challenges

ArcelorMittal is not the first major listed company to flag load curtailment woes this week.

Load curtailment is where Eskom asks large power users to reduce their power consumption.

Although load curtailment benefits South African citizens – who would have been subjected to stage 7 or 8 earlier this year without it – it can hurt the South African economy, as large power users contribute over 20% to the GDP.

In its interim results for the first half of 2023, Anglo American Platinum said that its headline earnings dropped by 71% and cut its dividend by 85% to 1,200 cents (H1 2022: 8,100 cents.)

It noted that the load curtailment led to the deferred production of over 65,000 Platinum Group Metals (PGMs) ounces.

“Most mining and processing companies, as large end-users, face ‘load curtailment’, and while this does require them to reduce power consumption, the impact of this can be reduced through careful planning, such as scheduling maintenance periods,” Amplats said.

“Furthermore, where shutdowns are unavoidable, they tend to reduce power at the processing stage of the supply chain, not at the mining operations. As such, ore or concentrate is stockpiled for future processing.”

According to the Bureau for Economic Research (BER), weaker mining sector profits have a disastrous effect on the economy.

“Surging mining profits were the mainstay of a corporate income tax bonanza in 2021 and to a lesser degree also in 2022,” the BER said.

“The abrupt change in fortunes places major downside risk on corporate, and overall, tax revenue in the current (2023/24) fiscal year. This is an important reason why, for some time, we have cautioned that Treasury was set to vastly undershoot its February 2023 main budget deficit expectation (3.9% of GDP) for 2023/24.”

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