Investors should look very closely at the restructuring going on at ArcelorMittal, South Africa’s leading steel producer. ArcelorMittal’s profits have taken a beating recently, the whip being cheap Chinese steel imports and rand exchange-rate fluctuations. The company’s recent interim results reflected a loss of R2.46 billion.
"The domestic and export steel markets in which the company operates are extremely constrained because of minimal local investment, infrastructure spend, high raw material costs and the volatility of the exchange rate. Local apparent steel consumption decreased by 3.8% as a result of subdued economic growth," says a SENS announcement from the company.
"In addition, South Africa and key African markets continue to import large quantities of steel, especially from China. Despite the import duties and designation of steel, half a million tonnes of steel were still imported into South Africa."
While the collapse in the share price from R242 to the current price of R4.85 is daunting, what comes down can always go up, given the right circumstances. In this case it’s a big ask, but it could easily happen.
credit: Graph Provided by Sharenet Advanced Online Charts
Fortunately, the government is responding to ArcelorMittal’s plight by putting safeguards on hot-rolled products, though these crucial moves have not yet been implemented.
The sustainability of the local steel industry and the prevention of job losses remains an important concern. The company is in talks with its stakeholders hoping to find solutions to their problems.
What seems important behind ArcelorMittal’s current moves is that so far they have not asked for shareholders or their large and well-heeled empowerment group to put their hands in their pockets and come up with new cash.
Hopefully, ArcelorMittal will continue to make their changes until the economy starts to turn and the orders for steel starts to flow.
The first sign of this economic upturn will be when Jacob Zuma and his Gupta pals make way for a new government. December is the ANC conference date where hopefully the highly regarded vice president Cyril Ramaphosa will step into the breach and save the economy of the country from further deterioration and corruption.
Jeremy Woods trained for three years as a journalist on the Herts Advertiser, St Albans, in the U.K. Once qualified, he left England to work as a crime reporter on the Vancouver Sun in Canada. After three years, he worked for the Los Angeles Times as a trainee financial journalist, spending most of his time reading company accounts and finding publishable stories in them. He moved to South Africa and for the last five years in journalism worked for the Sunday Times, Business Times, as Investment Editor. He has also published a financial thriller called "Special Payments", which was a best-seller on publication, and optioned three times for a film.