Steeled for a tough time

There’s more than a little of the supertanker issue about a business like Arcelormittal. In good times, shareholders rejoice in the size of its machinery and the amount of steel its dark satanic mills pour out. But when markets turn, it is hard to stop it ploughing on in exactly the same direction.

The scale of its infrastructure and the inflexibility of its cost base mean that it’s hard to avoid the gigantic splodges of red that have infested the company’s income statement of late.

There was some encouragement in 2017, with a 15% increase in average net realised sales prices and a 4% increase in sales volumes. But this was more than offset by the strengthening of the rand and higher raw material prices, leading to an increase of R128m in the group’s operating loss. Its markets, both local and export, remained moribund, with local investment and infrastructure spend so subdued that apparent steel consumption dropped to its lowest level since 2010.

There were some signs of improvement by the fourth quarter, when the company was able to report positive earnings before interest, tax, depreciation and amortisation (Ebitda) of R650m — the first quarter of positive Ebitda since the third quarter of 2016. But then came the publication of the final draft of the proposed carbon tax bill in December.

The tax is a concern, as it will have a significant financial effect without any positive behavioural change, as the company says there are no alternative methodologies that would allow it to produce steel without emissions. This will only add to what is already a distinctly gloomy picture.