A time for local companies to leadMay 5, 2020
The Energy Year talks to Mauro Longobardo, CEO of ArcelorMittal Jubail Tubular Products, about how the Covid-19 crisis will influence Saudi Aramco’s long-term vision and how ArcelorMittal is building resilience to cope with the ongoing challenges. ArcelorMittal Jubail Tubular Products manufactures pipes with a capacity of 600,000 tonnes per year in Saudi Arabia.
How do you think the current crisis will influence Saudi Aramco’s long-term strategic vision?
Saudi Aramco is well positioned to sustain its leadership role in the global oil market and emerge from the crisis stronger than before. It will keep spearheading new initiatives by introducing new technology applications of the Fourth Industrial Revolution. The country is facing the global crisis from a position of strength. It has a lot of resources and the government’s available cash reserves can allow the nation to focus on strategic investments during this difficult period.
We expect that the current emergency may last up to three to six months and a relatively short period like that will not hinder the long-term investments of Aramco. The government has already demonstrated its intentions to mobilise into a future-proofed economy and continues to see the importance of foreign direct investment as one of the pillars of its diversification strategy.
What steps has ArcelorMittal taken to build resilience to cope with the difficulties of Covid-19?
As a multinational company, we have to apply different approaches at each location where we operate to address the challenges stemming from Covid-19. Saudi Arabia has its particularities as an oil-producing nation, and the business structure of ArcelorMittal in other regions is not strictly linked to oil and gas.
For the moment, there is a lot of uncertainty as to what will happen once the pandemic ends, so we prefer to focus on what can be achieved in the short term. Some of our 2019 orders carried through to 2020 and they have not been cancelled, so we continue the production at our sites to be able to meet our clients’ expectations.
We know that the dual shock of Covid-19 and the oil price crash have taken their toll on all companies’ operations, including those of Saudi Aramco. We must try to improve liquidity as much as possible. We are working on reducing the company’s general expenditures that are not fundamental to our current production. All other expenses, including various items that we have rolled out in our short-term investment plan, will have to be postponed. We have put on hold all the new investments laid out for the first two quarters of 2020 too.
Many of the equipment suppliers in our business are located in European countries and are currently not operating due to the spread of the pandemic. A lot of ongoing activities were put on hold in the GCC area too. It makes no sense to continue with projects given the delays and interruptions to the global supply chain, which will only hinder operations going forward. It is best to put the plans on hold and wait for the rebound after the crisis ends to have better clarity about what steps we have to take as a company. For now, no one knows whether there will be a second or third wave of Covid-19. The only thing we can do is minimise our capital expenditure and reduce all the unnecessary expenses.
What are your expectations in terms of the company’s production?
In 2019, we were planning on operating at 80% of our capacity and that turned out to be a bit too ambitious for several reasons. One is that Saudi Aramco had some issues with its inventory while dealing with its historic IPO last year. I expect we will be at less than 50% of our plant capacity in 2020 due to the dual shock of Covid-19 and low oil prices. However, we remain optimistic and have developed solid export channels for our products, even though we are now facing a great deal of obstacles when it comes to exportation.
How quickly have you managed to get your workplace ready for Covid-19?
Protecting the health of our people has been the first priority. We have suspended all types of administrative activities as well as our training and development courses. We have introduced remote work for all our employees who can easily carry out their tasks from home. This is not a viable option at our factories, but it has been the safest solution for our office personnel.
Even though Saudi Arabia imposed curfews on several cities including Jubail, we have been able to sustain our operations during this period. Our employees have been passing through all the necessary checks and are taking extra precautions against Covid-19. We are considered to be operating in a strategic industry for the country’s industrialisation process. Therefore, the Royal Commission for Jubail and Yanbu has allowed us to continue our production while conducting systematic medical check-ups for our employees at the factory.
How does ArcelorMittal go about mitigating supply chain disruptions in the current environment?
With the exception of raw materials, procuring mainly from our key supplier Jindal Shadeed Iron & Steel in Oman has not been an issue so far. They ship all the materials directly to Saudi Arabia, and because of this we have not suffered any disruption.
We are also working with some other suppliers, but thanks to the kingdom’s in-country value programme, which started to take precedence a couple of years ago, we have the possibility to buy from several local suppliers. We are still able to get material from outside too, even though we are trying to minimise the risks involved in imports, which are already limited.
We are currently in discussions with Saudi Aramco about enhancing the country’s local supply chain. Imports of seamless pipes from other countries should be stopped entirely in the coming weeks. We have been investing quite a lot in the last years in our factories and are able to satisfy the current needs of Saudi Aramco. However, it would be great if all our purchases were derived from local suppliers. On the one hand, it would allow for timely delivery to Saudi Aramco. On the other hand, it would also boost the nation’s local capabilities development. This is the time to direct all the orders to the local suppliers and help the growth of the local industry.