Earnings in ArcelorMittal South Africa (Amsa), which is battling a slowdown in the local economy and national infrastructure and logistics shortfalls, are expected to plunge for the full year to December, tipping the company from profit-making into a loss.
“Business Report” reported last week that big South African steel manufacturers, including Amsa, were struggling to keep the lights on.
Amsa yesterday reported that headline earnings for the year to December 2023 were expected to plunge by at least 166% from R2.34 headline profit per share in the previous contrasting period to a loss per share of between R1.55 and R1.85 per share.
“Included within the above range of the earnings per share guidance, is the recognition of an impairment charge primarily relating to company’s longs steel operations,” Amsa said in a trading update yesterday.
The company announced in November that it was closing its longs business in South Africa. However, a widespread outcry among stakeholders forced the company to hold engagements with stakeholders that include government representatives.
The closure of the longs steel business units had been a result of “a slow economy and difficult trading environment including low demand”, as well as “national constraints in particular high transport and logistics costs” as well as energy prices.
“ArcelorMittal South Africa has been engaging with various stakeholders, including government, represented, by among others, the Minister of Trade, Industry and Competition, Transnet, the IDC, numerous industry associations and institutions, organised labour, affected and interested customers, suppliers, and community forums, amongst others,” the company said in its update.
Under these engagements, ArcelorMittal SA has been requested to “consider support needed to change the closure decision” although it had “reiterated that it did not need any preferential treatment” or subsidies.
The company noted that what it needed was for the government to create “a level playing field” for South Africa’s primary steel producers. This would be achieved through addressing the “structural constraints” affecting the steel industry.
Although engagements had progressed and been constructive, finding solutions to the company and industry’s concerns and constraints have been complex and inconclusive.
A further announcement regarding the fate of Amsa’s longs business would now be made in the near future, the company said.
“Reversing the closure decision holds substantial risks and requires the commitment of, at a minimum, the company, its customers and suppliers, the government, state-owned enterprises, and our employees,” Amsa said.
In the second-half period to December, market conditions for Amsa continued to be extremely challenging, with the anticipated improvement in steel demand not materialising.
The South Africa steel market was now experiencing “real demand weakness”, with business confidence deteriorating and key steel-consuming sectors remaining weak, with low to no growth.
“Inventory levels in the market are high, impacted by higher imports further negatively disrupting the supply/demand equilibrium. Elevated imports from China, where the majority of the steel industry is loss-making, is impacting not only South Africa significantly, with its low trade protection measures, but also the Africa overland and sub-Saharan Africa markets, in general,” the company added.
As a result of this challenging trading environment, earnings levels for Amsa had become under severe pressure, aggravated further by a substantial impairment charge of R2.1 billion recognised against the property plant and equipment and other intangible assets of the longs business only.
However, no closure-related or retrenchment costs were instituted into this as a result of the ongoing consultation process regarding the future of Amsa’s longs steel businesses.
Shares in the company plunged 8% on the JSE, closing yesterday’s trade session at R1.38 but are up nearly 12% in the three-month comparative.