manufacturer and supplier of steel attachments for surface mining equipment vr steel is reporting a drop in sales owing to adverse market conditions worldwide.
vr steel md john van reenen says that the company’s mining division, which makes up 40% of its total business, has experienced a drop in new equipment sales of up to 70%.
van reenen says that most mining groups are holding back cash from their mining divisions owing to the uncertainty of the current economic climate.
in addition, diversified miner bhp billiton has reduced its metallurgical coking coal prices by 58% and brazilian miner vale and diversified miner rio tinto have reduced their iron-ore prices by 35%.
“companies that are in the steel industry within south africa will suffer as a result of this. the cost of steel will decrease dramatically, resulting in further profit decrease,” says van reenen.
in the company’s mining division, only one large order has been received since the beginning of this year, according to him. also, orders that were placed at the end of last year are now coming to an end.
“from july or august this year, we are going to see a real crunch taking place. i estimate that another 150 000 people in south africa will lose their jobs. we may have to consider retrenchments within the company in a few months’ time if the domestic market does not pick up,” says van reenen.
he adds: “south africa might begin to see a moderate upturn in the first quarter of 2011. certain green shoots may appear sooner, but we will probably see a realignment in people’s purchasing patterns in that everyone will think twice before spending money.”
traditionally, 50% of the company’s sales have been bound for export with the other 50% being made up of local sales.
the company has now set up manufacturers in asia and south america. all exports to west coast america, australia and china will come from its manufacturer in shanghai, with all orders to south america being manu-factured in brazil.
van reenen says that one of the reasons why the company has begun manufacturing offshore is the fluctuation of the rand against the dollar.
“it is challenging operating in the south african rand environment. we have gone from r10 to $1 to r8 to $1, in the last six weeks. this means that the steel price goes up 20% along with the labour price going up by 20%,” says van reenen, referring to exports.
he adds: “the fluctuation of the rand ultimately affects the steel price and the labour price. at r8 to $1, the company, and the country, are just not competitive anymore. china, india and south america are linked to the dollar, which gives their business greater stability, which was a significant factor when deciding to manufacture internationally.”
further, he says that the unions are a significant factor when owning a factory in south africa, with labour being far too volatile to be able to place any emphasis on the long-term supply for the export market.
more positively, the company launched its vr truck bodies at the beginning of 2008. van reenen says that the company has enjoyed measurable success in that clients have reported a significant reduction in diesel and maintenance costs.
in addition, the company’s operation in australia is set to have a good year, with a large order being placed for dragline buckets, says van reenen.
the company manufactures attachments for surface mining equipment, such as dragline buckets, dragline rigging, dippers, truck bodies, excavator buckets and hydraulic shovel buckets.
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