Steel giant ArcelorMittal crashes by more than 40% after being warned it has 'underestimated' SA's slowdown

Steel giant ArcelorMittal crashes by more than 40% after being warned it has ‘underestimated’ SA’s slowdown

Shares in Arcelor Mittal, South Africa’s largest steelmaker, crashed 43% on Tuesday afternoon, wiping out about R1.7 billion from shareholder value. This came after it announced that it had turned into a temporary loss after underestimating the economic effects of dumping the unprecedented loads on its customers.

The group said in a trade update that it expects headline earnings per share to fall by as much as 117% in its year ending in June, implying a loss of about rand 515 million for a company now worth about rand 2.3 billion in JSE.

The group said that “the softness of the market amid the unprecedented severity of electrical load outages in the past six months has been greatly underestimated, which in turn affected the response time through which production can be adjusted in a responsible and deliberate manner.”

She added, “The construction and maintenance of any form of operating rhythm, which is absolutely necessary in the operation of a continuous, integrated process of the steel industry in a cost-conscious manner, has proven particularly problematic.”

The company, which dates back to 1928 and accounts for more than half of SA’s raw steel production, reported that load shedding, rail malfunctions and strikes slashed its profit by R2.3 billion in its year ending at the end of December, but it has been steadily increasing. They are optimistic that conditions will improve.

Read | Steel giant ArcelorMittal is pushing plans for its energy, rail access after its R2.3 billion profit hit.

It said on Tuesday that unsustainable price cost pressures and positive moves in international steel prices in early 2023 provided reasons for some optimism, but that “the domestic trade environment has not detected such a tailwind.”

The group said in its update that high inflation, load easing, rising interest rates and deflation in key steel-consuming sectors such as manufacturing and autos as well as mining and construction affected already fragile consumer confidence.

Furthermore, the expected issuance of working capital has proven more challenging, resulting in the net loan position remaining at elevated levels.

ArcelorMittal, which had net debt of about R2.8 billion at the end of December, also announced on Monday that Chief Financial Officer Siphamandla Mthethwa had resigned for personal reasons after just over two weeks on the job.

“Remedial measures are underway to improve the company’s net borrowing position following a longer-term weaker steel trading environment in the region,” the group said on Tuesday.

Shares in ArcelorMittal SA crashed nearly 43% to levels last seen in early 2021 on Tuesday, and are now down by just over half so far in 2023. Click here for details about its shares as well as other information.

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