Business / Industrials
ArcelorMittal gains ground as analysts warn of tough times
BY MARK ALLIX AUGUSTUS 01 2016, 06:34
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OPTIMISTIC: ArcelorMittal SA CEO Wim de Klerk at the company’s half-year results at the Sandton Convention Centre on Friday. Picture: FREDDY MAVUNDLA
OPTIMISTIC: ArcelorMittal SA CEO Wim de Klerk at the company’s half-year results at the Sandton Convention Centre on Friday. Picture: FREDDY MAVUNDLA
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JSE-listed companies: ArcelorMittal SA
Companies and organisations: Eskom
ARCELORMITTAL SA made an after-tax loss of R450m in the six months to June from a net loss of R111m in the same period last year — a dramatic improvement on the net R8.5bn loss it made in the second half of 2015.
New CEO Wim de Klerk said the group’s long-delayed empowerment deal was paramount and imminent, and the company was continuing to make peace with the government over monopoly pricing. But he said SA’s steel sector remained vulnerable to imports, and despite some recent tariff protection, safeguard duties were needed, along with a "fair pricing mechanism", and the further designation of domestic steel for use in large infrastructure.
Analysts at the results presentation in Sandton were concerned about the strength of the company’s balance sheet. They said rising electricity costs, Transnet’s logistics problems and a restive South African labour force were fuelling continuing headwinds.
"The problem is the balance sheet is not as strong as it looks," independent financial analyst John Kransdorff said on Friday.
He said ArcelorMittal SA had huge capital expenditure ahead of it for maintaining plant and mitigating pollution. This came as the group’s Indian-backed parent company, ArcelorMittal — based in Luxembourg — had taken up the bulk of a R4.5bn rights offer earlier in 2016 to help recapitalise the group.
Kransdorff also said Eskom’s decision not to sign further independent power producer agreements boded ill for the company. "There will be a blow-up with Eskom. With high electricity costs they cannot function," he said.
Independent financial analyst and money manager Ruby Rosenberg said ArcelorMittal SA had "surmountable problems — some of which were exceptionally difficult". But he said even with higher revenues in future, earnings would be insufficient to cover higher electricity costs going forward, along with higher wage demands from unions as living expenses soared.
"Nothing was said about staff costs — unions are not going to sit quietly by," Rosenberg said.
De Klerk, meanwhile, said ArcelorMittal SA had come to a final agreement last week with its Likamva Resources black economic empowerment partners. But he gave no insight into terms of any deal.
"We came to a final agreement last (Thursday) night on all outstanding issues," he said. The detail was now left to lawyers and paperwork.
He also said the group was "very close" to finalising a "fair-price deal" with the government. It was negotiating "basket prices" with the state relative to countries with whom SA traded.
Along with settling on a R1.5bn fine with the Competition Commission over monopoly pricing, De Klerk said the government had now introduced 10 requested import tariffs on steel products, as well as one safeguard duty, and was busy finalising four other safeguards for the sector.