Western Cape Business News

Send  Share  RSS  Twitter  20 Jan 2011

MANUFACTURING: Cisco May Be Recycled


Recent Western Cape Business News

NEWS that a Cape Town-based scrap-based steel mill could be shut-down is another body blow for the lumbering Western Cape economy – especially following recent high profile closures at Sans Fibres and two sizeable clothing and textile divisions at Seardel.

But perhaps the writing was already on the wall for the Kuils River-based Cisco steel mill as early as the end of June last year when parent company Murray & Roberts – the construction and engineering conglomerate – warned in its annual report that volatility in global markets and local market dynamics had placed severe pressure on the steel division. Cisco employs 415 people.

At that stage M&R had already undertaken a strategic review and started repositioning the steel businesses – a process the company admitted “may entail the closure or sale of underperforming assets”.

At first glance at M&R’s annual report the casual observer may be forgiven for not noticing undue stress at Cisco.

The annual report noted: “The Cisco steel mill operated at full capacity through the year and sold its production in the domestic and international markets.”

But the report also highlighted that the increased cost of scrap metal and electricity - plus a static steel price in the domestic market for most of the financial year - placed severe pressure on profit margins.

It’s not clear from the annual report whether Cisco was still making a profit.

Cisco – which stands for the Cape Town Iron & Steel Works - is a scrap based mini mill which produces reinforcing steel in billet and bar form. It has a production capacity of 250 000 tons a year.

The company has a long operating history out of Cape Town, spanning some four decades. News of the pending closure of Cisco – although partly expected – is sad because the Cape steel operations formed part of the construction cluster that stemmed from the original Murray & Stewart in the Western Cape (which dates back to 1902).

In any event, in mid-November M&R advised it shareholders that some divisions within the steel business – specifically the electric arc furnace melt shop and reinforcing steel rolling mill situated in the Western Cape (Cisco) – would be rationalised as a result of adverse ongoing market conditions.

The bottom line is that M&R will dispose of Cisco “as a priority, failing which certain operations will be closed or rationalised”.

There is a glimmer of hope in that M&R says it will consider all “reasonable options” to mitigate the impact of the decisions around Cisco.

CBN reckons – judging by what transpired at AECI around Sans Fibres – that M&R may wait in vain for an alternative proposal (perhaps a management buyout or private equity pitch) that could rescue the situation at Cisco.

Although we do wonder whether an inventive commodity merchant like Insimbi – which has been making selective acquisitions in the Cape Town area recently – might not have a closer look?

On a macro level, though, steel production – especially on a relatively small scale – is hardly an enticing (or viable) vocation. Domestic steel prices for scrap-based steel makers are reportedly less than costs.

In any event we should know if Cisco – which officially shut down in early December – has any slim hopes of revival by the end of the first quarter of 2011.

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