Arcelor set for interim profit

Africa’s largest steel maker, ArcelorMittal SA, looks to be on track for its first interim profit in five years, bolstered by an upward valuation of its Macsteel asset, which is for sale.

Africa’s largest steelmaker, ArcelorMittal SA, looks to be on track for its first interim profit in five years, bolstered by an upward valuation of its Macsteel asset, which is for sale.

However, this financial boost, news of which sent the share price soaring as much as 28.5%, is a once-off, with the group remaining under pressure.

The headwinds facing the steelmaker, which include cheap imports from China and limited infrastructure spend by government, have only intensified, said BP Bernstein analyst Makwe Masilela.

ArcelorMittal SA’s share price closed 18.47% higher at R2.95 on Thursday.

It has lost 99% of its value since its share price peaked in 2008 at R265.

The company’s return to profitability, however, is only on a headline basis, with the group expecting a headline profit per share of between 1c and 9c, compared with a headline loss of 203c in the previous year.

The company was still expecting an overall loss per share of 142c to 152c.

ArcelorMittal SA had said in March it would sell its 50% stake in the Netherlands-based Macsteel for as much as R2.8bn, intending to use the proceeds to bolster its balance sheet and pursue new investments.

However, the steelmaker has come under pressure from a strengthening dollar, weak local demand and an influx of cheap imports into SA, saying in February that it expected domestic sales volume to remain flat in 2018.

It also warned about material uncertainty regarding its local investments as well as the steel industry as a whole, continuing to operate without significant structural change.

This was due to import threats, primarily from China.

Masilela said that the infrastructure environment was also difficult.

“It is very difficult, especially for the big guys. Most of the spending, for example in municipalities, is going to the medium to small contractors, particularly emerging black businesses,” he said.

ArcelorMittal SA expects export markets, particularly in the rest of Africa, to be more resilient, with the company intending to restructure its balance sheet, seek new products and markets, and pursue import substitution to mitigate trading conditions.

The company’s results for the six months to end-June are expected to be released on August 1.

ArcelorMittal SA declined to comment further ahead of the release of its results.