More shine

Finweek English Edition - - Companies & Markets -

RE­CENT SHARE PRICE per­for­mance has been steely. ArcelorMit­tal SA’s share has been pun­ished over the past six months, down more than 50% on news of re­duced de­mand for steel and de­clin­ing prices. But it has picked up nearly 15% over the past week. That’s in the face of pretty dis­cour­ag­ing events for steel pro­duc­ers.

So what’s cheer­ing ArcelorMit­tal’s share? Per­haps some in­vestors are tak­ing a view that, be­low 8000c/share, its price has dropped too far be­low in­trin­sic value. That’s a se­ri­ous busi­ness; Africa’s largest steel maker, and even with lower steel prices and re­duced de­mand, ArcelorMit­tal will be kept busy.

The com­pany in­di­cated in its thirdquar­ter re­sults to end-Septem­ber 2008 that the out­look was de­te­ri­o­rat­ing. A num­ber of pri­vate sec­tor com­pa­nies have an­nounced de­lay­ing or can­celling cap­i­tal spending projects. About the only good thing is Gov­ern­ment’s ap­par­ent, if dither­ing, com­mit­ment to in­fra­struc­ture de­vel­op­ment.

Ex­port mar­kets are also cloudy, with the slow­down in de­vel­oped economies in the United States, Bri­tain and Europe and even signs of a slow­down in China. About all that’s cur­rently in an ex­porter’s favour is the weaker rand.

ArcelorMit­tal says ac­cord­ingly fourth quar­ter earn­ings were ex­pected to be lower and pro­duc­tion would be cut by more than 30%.

But at least ArcelorMit­tal clearly spelt out what was com­ing. In­vestors can see the worst and may feel the share has over­re­acted. But the re­cov­ery of the share price also roughly co­in­cides with the with­drawal of a cau­tion­ary an­nounce­ment by ArcelorMit­tal. That re­lated to a con­tem­plated black eco­nomic empowerment trans­ac­tion. Seems it’s now off. And the share price im­proves! Life can get strange in Africa.

Fi­nal re­sults should be an­nounced around 13 Fe­bru­ary. Per­haps peo­ple close to the com­pany or the steel in­dus­try are tak­ing a view that things aren’t that bad. How­ever, cau­tious in­vestors should still be wary.

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