Steeling for a white knight
If government doesn’t act now, it will be a disaster for the industry, writes Fifi Peters
Investors in the steel industry have taken a beating in recent years — and there’s no suggestion the tide is going to turn any time soon.
This is bad news for ArcelorMittal SA (Amsa), the only steel company on the JSE not in business rescue.
ArcelorMittal SA CEO Paul O’Flaherty has pleaded with government to come to its aid and protect an industry that has been hit by Chinese steel manufacturers allegedly “dumping” the metal cheaply in SA and elsewhere in Africa.
Government’s response will be critical for a company which has seen its stock price plunge 73% in the past three years, while the JSE’s all share index has climbed 41% in that time.
This month, SA’s largest steel producer, which supplies more than 70% of the domestic market, saw its share price perk up from its low of R10,80 reached in July — the weakest level in more than a decade — to around R12.
But even if government comes riding to its rescue, analysts aren’t convinced.
Nicholas Sorour, a portfolio manager at Sasfin Securities, says investing in the steel maker right now would be like “trying to catch a falling piano”. Sorour is recommending that his clients stay away from the company, arguing that “the risk is too high”.
Sorour cites the collapse in the international prices of steel, amid a supply glut as the world’s biggest commodities consumer, China, reduces demand, as very good reasons to be wary.
“In my opinion, Amsa is below investment grade. It does not tick any of the boxes that Sasfin looks at as investment material,” says Sorour.
“I would rather be investing in industries where you are seeing growth. Those that are thriving, not [just] surviving,” he says.
There aren’t many of those around right now, but Sasfin favours tobacco (such as British American Tobacco), alcohol (such as SABMiller) and health care as defensive industries better placed to ride out the storm.
The structural problems facing SA’s manufacturing industry aren’t going away anytime soon