Loss-making steelmaker ArcelorMittal South Africa said yesterday that the South African government was extending tariffs on steel imports, sending its shares sharply higher.
The South African unit of the world’s largest steel company also said it was in advanced talks with the government on using local steel for public infrastructure projects and on a pricing mechanism for ArcelorMittal-produced steel.
ArcelorMittal South Africa said its board believed the new government measures, together with the cost-cutting steps the company was taking, had “a reasonable prospect of returning the company to profitability in the medium term”.
The shares spiked 14 percent higher in afternoon trading yesterday because the protection from steel imports granted by the government was greater than initially expected, said Momentum Wealth’s senior portfolio manager Wayne McCurrie.
The firm’s commitment to cut spending was another factor behind the share price rise, McCurrie said.
The company said government had put duties on imported wire rod and reinforcing bar from last month, helping domestic producers, which were struggling to compete with an influx of cheap supplies from China.
Decisions on a further seven applications for protection from imports were expected in early 2016, it said.
The Johannesburg-listed firm, 47 percent-owned by the ArcelorMittal Group, launched a R4.5 billion rights issue last November as it battled falling steel demand, rising cheap imports and higher costs.
The company, which has not reported a headline annual profit since 2010, plans to use R3.2bn of the rights issue to reduce debt, with the remainder used to fund operations.
The firm has already announced a restructuring plan that involves clamping down on costs, liquidating excessive stocks, selling other assets and cutting back on non-essential capital expenditure.
Yet, Imara SP Reid’s head of research, Stephen Meintjes, said the trading update was filled with “lots of ifs and buts”.
The shares rose because the trading statement was “mildly encouraging”, but “there is still a lot of uncertainty” and returning to profitability would be a long haul, he said.
Steel companies around the world are grappling with a global supply glut that has sent producers’ share prices to their lowest levels in more than a decade.
ArcelorMittal South Africa said short-term borrowing facilities with local banks had recently been renegotiated and reduced, but ArcelorMittal Group loan facilities had been extended to offset the reduction if required.