Chairman and Chief Executive's report 1/7

ArcelorMittal South Africa

Annual Report 2008

Chairman and

Chief Executive’s report

Dear Shareholders,

Despite the events of the last quarter of the year,

2008 was a financial year that ArcelorMittal South

Africa can be rightly proud of. Benefiting from a

strong demand for steel and high prices globally,

we reported a 65% rise in headline earnings to

R9.5 billion, a record for the company.

The benefits of the recent consolidation in the

steel industry were evident in the swiftness of the

response to the economic downturn. ArcelorMittal

announced production cuts of up to 35% globally

in November 2008 to support the de-stocking

process, followed by other major steel companies.

This measure of discipline and the extent of

production cuts are relatively new phenomena for

the steel industry and have been made possible by

the size and scale of the larger producers within the

sector, such as the ArcelorMittal Group.

Clearly, the global and domestic context has

changed dramatically since September last

year. Rarely has there ever been this level of

uncertainty about markets, demand, pricing and

the future economic landscape. ArcelorMittal

has demonstrated agility, an ability to take fast

decisions and boldness, which I believe will be the

key differentiators between the winners and losers

in managing these volatile times.

There really is no country, industry or company

that is not affected in some way by the global

economic crisis – the only difference is the degree.

Nevertheless, there continues to be widespread

optimism that the South African economy will

not be as hard hit by the global economic crisis as

other parts of the world. This is founded principally

on the fact that exports account for a smaller

proportion of South African GDP compared to

say, the countries of Southeast Asia. However, the

worsening current account deficit increases the

country’s vulnerability as does depressed consumer

spending.

While we must accept that 2009 will be a

challenging year, ArcelorMittal South Africa is a

strong company with a healthy balance sheet and

negligible debt. This, together with the steps we

have already implemented, ensures that we are well

positioned to tackle this new environment.

Overview

During the first three quarters of 2008, global

steel markets enjoyed an unparalleled period of

buoyancy. Led by China, robust demand for steel

products resulted in a steep rise in prices in all

markets in which steel is traded. With a suddenness

and sharpness that took the industry by surprise,

things took a turn for the worse in the last quarter

of the year. Worldwide, steel consumption slumped

by over 20% in the fourth quarter of 2008. This

was followed in short order by a substantial drop in

prices and further compounded by the onset of a

freeze in credit markets.

However the overall economic situation eventually

plays out, there is no escaping the fact that

some sectors of our economy are experiencing

devastating declines. The mining and metals sector

is one such industry. Domestic steel demand

suffered a significant contraction in the fourth

quarter, which is not expected to reverse for at

least the greater part of 2009. The consumer

market had begun a gradual decline much earlier

and continued to do so throughout 2008. This is

not surprising considering the high interest rates

prevalent through much of the period.