Pos­i­tive break­out seems likely

Finweek English Edition - - MARKET PLACE - edi­to­rial@fin­week.co.za By Mox­ima Gama

Like many steel­mak­ers around the world, ArcelorMit­tal SA (Amsa) has been hurt by a glut of steel sup­ply, mainly from Chi­nese pro­duc­ers, and ris­ing costs. The com­pany has failed to earn an an­nual profit since 2010.

In a quar­terly up­date pub­lished on 12 May, Amsa warned that trad­ing con­di­tions in the do­mes­tic mar­ket re­main “dif­fi­cult”. Lo­cal sales were down 3.4% year-on-year in the quar­ter to end March, Amsa said, with de­mand un­der pres­sure as a re­sult of poor eco­nomic ac­tiv­ity and on­go­ing im­ports. It said ex­port sales will also come un­der pres­sure due to weak in­ter­na­tional prices. In ad­di­tion, pro­duc­tion chal­lenges at its Van­der­bi­jl­park plant con­trib­uted to a 2.3% de­cline in liq­uid steel out­put.

Amsa also warned that de­spite the in­tro­duc­tion of a 10% im­port duty and a de­cline from 310 000 tonnes in the first quar­ter of 2016 to 257 000 tonnes this year, im­ports re­main high. Amsa said it “re­mains firmly of the opin­ion that a so­lu­tion is re­quired to pro­tect the down­stream in­dus­try from cheap fin­ished and semi-fin­ished prod­ucts that con­tinue to be im­ported into the coun­try”. Pro­cesses are cur­rently un­der way to in­tro­duce safe­guard mea­sures on hot-rolled coil from 1 July. How to trade it: Cur­rently range-bound be­tween 620c/share and 850c/share, ArcelorMit­tal is trad­ing on the bullish end of its range. With the three-day rel­a­tive strength in­dex (RSI) form­ing ris­ing bot­toms (pos­i­tive di­ver­gence), a pos­i­tive break­out seems likely. Go long above 850c/share, with the up­side tar­get sit­u­ated at 1 080c/share. Note that this po­si­tion would be trig­gered within a bear trend; there­fore main­tain stop-losses and watch them care­fully.

Amsa would aban­don its bear trend above 1 080c/share and an­other good buy­ing op­por­tu­nity be would trig­gered above 1 105c/ share. Al­ter­na­tively, re­frain from go­ing long and go short be­low 620c/share in­stead. The down­side tar­get would be at 390c/share. Amsa’s all-time low at 290c/share was tested in De­cem­ber 2015.

Amsa also warned that de­spite the in­tro­duc­tion of a 10% im­port duty and a de­cline from 310 000 tonnes in the first quar­ter of 2016 to 257 000 tonnes this year, im­ports re­main high.

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