Plunging shares baffle Mittal

ArcelorMittal SA’s share price slumped 7% on Thursday, a day after Trade and Industry Minister Rob Davies defended the government’s policy of using import duties to protect the steel conglomerate from the full force of global competition.

ArcelorMittal’s share price slumped 7% on Thursday, a day after Trade and Industry Minister Rob Davies defended the government’s policy of using import duties to protect the steel conglomerate from the full force of global competition.

More than half-a-million shares changed hands as the share plummeted to its lowest level in 12 months. It remains well stronger than its record low of 325c in December 2015.

The company could not identify specific reasons for the 49c drop in the price. Spokesman Julian Gwillim said it seems to have followed the downward trend in resources with the unexpected strength of the rand contributing to the weakness. “There are no safety or operational issues that could have impacted the price in this way.”

Although the share has been on a downward trajectory over the past five years, there have been occasional upticks. In one day’s trading in mid-May, it gained 5.6% to R7.96.

At the ruling price, the share is a shadow of its former self and is worth just 10% of its 2012 value. There is little on the horizon to justify anything but a bearish outlook for the steel giant. Although there are signs of a pick-up in the European economy, these are regarded as tentative. Any recovery in the global economy would have to be sustained and substantial to soak up the excess supply that is depressing steel prices.

For ArcelorMittal SA, the grim global economic outlook is compounded by its own specific problems. Earlier in 2017, the US authorities said it was looking into allegations of dumping by South African steel producers. If allegations that ArcelorMittal SA is benefiting from dumping margins of 159.3%-164% the resulting import duties would destroy any profit potential for the group, even if the rand fell.

In addition, it is grappling with a record settlement imposed by the competition authorities. It must pay a penalty of R1.5bn over five years and undertake capital expenditure of R4.6bn over the same period.

Davies told Parliament protecting ArcelorMittal in SA was necessary to preserve the country’s primary steel production.