ArcelorMittal SA back in the black

ArcelorMittal SA has swung into profit, reporting its strongest interim earnings in a decade as the steelmaker emerges from the most challenging period in its 93-year history. Half-year earnings of R3.22bn compare with a loss of R1.25bn in the first half of 2020.

Steelmaker ArcelorMittal SA (Amsa) has swung into profit, reporting its strongest interim earnings in a decade as it emerges from the most challenging period in its 93-year history.

Amsa’s half-year earnings of R3.22bn compare with a loss of R1.25bn in the first half of 2020. Headline profit was R2.48bn compared with a loss of R2.61bn.

Amsa owes its good fortune to a 79% increase in average international dollar steel prices, with a 42% rise in realised rand prices. Recovered steel demand in the domestic market saw sales volumes jump 10%, while liquid steel production rose 36%.

At the same time Amsa limited input costs, with its raw material basket price rising 2% compared with a 44% increase in the international basket.

“The financial performance is all the more remarkable against the backdrop of one of the most challenging operating environments in ArcelorMittal SA’s long history,” said Amsa CEO Kobus Verster.

The period was characterised by several challenges, he said. These included two Covid19 waves; difficulties associated with restoring and accelerating production in the complex integrated steelmaking environment; a long maintenance stop at Newcastle’s blast furnace to deal with damage caused by the hard lockdown; a highly inconsistent rail service from Transnet Freight Rail leading to frequent and costly operational stops; and tragic safety incidents. In addition, an 8% safeguard duty on two steel products will lapse next month.

The duty has been highly contentious, and Amsa has argued in the past that it was required to protect the company from a glut of cheap imports.

However, many downstream players have complained that the duty forced them to buy more expensive steel. “There is still a 10% [import] duty on all steel products for ourselves and our competitors that will remain in place,” said Verster.

“The impact [of the safeguard lapsing] would be relatively low, because certain countries, like Russia and Taiwan, were excluded from the safeguard countries, and it’s actually those countries where some of the imports were coming from.”

Offering an outlook for the second half of the financial year, Verster noted the company had been able to protect its workers and assets amid the civil unrest that swept through KwaZuluNatal and parts of Gauteng in the second week of July, but it had lost some production and shipments as a result. Verster said that the healthier market and improved operating environment should be reflected more fully in Amsa’s financial performance in the second half of the year. Verster said he thought the business was now at a point where it was sustainable, though its profitable levels will depend on the steel cycle.

Even so, CFO Desmond Maharaj said dividends were not on the cards for long-suffering shareholders just yet. “I think there’s still a long way to strengthen our balance sheet,” he said. “Once we think the balance sheet is strong enough and resilient enough to handle the various steel cycles, then we’ll be in a position to discuss dividend payments.”

Amsa committed itself on Thursday to finalising its implementation road map for meaningful carbon reduction by the end of 2022. In SA, the company said it will need funding support for carbon-neutrality initiatives along with an enabling environment to encourage cross-sector and industry collaboration.

The share price was 9.69% lower at R6.43 at close of trade on Thursday, giving Amsa a market capitalisation of R7.3bn. The share price is up 543% so far this year.