Positive breakout seems likely
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.