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.