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ArcelorMittal SA share price plunges despite robust interim earnings

Amsa did not declare a dividend.

Amsa did not declare a dividend.

Published Jul 29, 2022

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The share price of South Africa’s biggest steel producer, ArcelorMittal SA (Amsa) slid 15 percent yesterday, despite it reporting a 22 percent increase in interim headline earnings to R3 billion.

The firm did not declare a dividend.

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Chief executive Kobus Verster, however, warned that economic headwinds had intensified both internationally and domestically, significantly affecting the trading environment.

“The international price correction in a soft local demand environment will impact the financial results,” he said.

The shares traded at a low of R5.50 in mid-morning trade following the release of results for the six months to June 30.

Its revenue rose by 19 percent to R22.17bn. The net debt position was 61 percent lower at R1.09bn.

“The company has successfully delivered against its predicted outlook, and in some instances outperformed expectation,” Verster said.

Amsa’s earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 12 percent to R3.6bn.

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The raw material basket increased by 41 percent in rand terms, coking coal increased by 91 percent, scrap metal by 8 percent and iron ore by 4 percent.

Realised average steel prices increased by 30 percent (in rand terms), reflecting the weakened average dollar/rand exchange rate and the lagged benefit of higher steel prices.

“Global crude steel production decreased to 949 million tons due largely to plant idling, because of the pandemic-related lockdowns, high inventories and weak order levels in China,” Amsa said.

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In South Africa, apparent steel consumption for the first half of 2022 fell by 14 percent to 2 million tons, reflecting high market inventory levels; slowing market activity in key steel-consuming sectors; slow realisation of infrastructure projects; with inflation and rising interest rates affecting disposable income in the retail sector.

Sales volumes decreased by 8 percent or 104 000 tons to 1.2 million tons compared to the 2021 comparable period, due to a 10 percent fall in domestic sales to 1 million while exports increased by 12 percent to 137 000 tons.

The group said in the first quarter of 2022, the global steel environment reflected the implications on supply from the Russia-Ukraine conflict, with stronger than anticipated steel prices because of tighter supply/demand dynamics.

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“The second quarter saw an increase in uncertainties and risk, including the length of the Russia-Ukraine conflict; implications of higher energy prices and inflation on economic activity and consumer confidence; the slowdown in China; and the risk of recession in the US and EU due to tighter monetary policy.”

Verster highlighted some of the difficulties, which made the operating environment volatile. “A month-long shutdown of one of Vanderbijlpark’s blast furnaces and the intermittent stoppages of the remaining fleet to avoid the risk of an uncontrolled stop due to insufficient inventory, particularly of iron ore, resulting from the unavailability of the rail service.

“The impact on customers of the damaging floods in KwaZulu-Natal; an unnecessary two-week labour strike and associated violence, intimidation, criminality and misconduct; severe electricity load shedding, which is proving to be particularly disruptive to suppliers and customers; and a softer local steel trading environment,” Verster said.

Verster said the company had maximised road transport opportunities and would continue to work with Transnet on issues of security and maintenance.

“We have a chief executive-led initiative to collaborate with Transnet Freight Rail on aspects of security and technical assistance,” he said.

On load shedding, Verster said South Africa had experienced its worst bout of electricity load shedding in June, 2022 taking the year-to-date levels for 2022 to the full year 2021-levels.

He said the situation was aggravated by highly unreliable municipal infrastructure.

“As a sign of confidence in the country, ArcelorMittal South Africa, with the support of the ArcelorMittal Group, announced that it is embarking on a process to develop two 100MW renewable energy projects, planned for Gauteng and the Western Cape.

“This is subject to the outcome of a feasibility study, which should be finalised in 2023/2024 with the objective of yielding meaningful cost-reduction benefit by 2024/25. These benefits will be increased and accelerated if regulations are relaxed,” Verster said.

He said the long-term investment case for steel remained intact given it’s inherently vital role in the transition to a low carbon, circular economy.

BUSINESS REPORT

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