SA’s biggest steel producer, ArcelorMittal SA (Amsa), has lost a further R1bn in market value since the release of its interim results in late July, indicating that investors are taking a dim view of the company’s outlook heading into the second half of the financial year.
Its shares are down more than 37% on the JSE since July 27 when the company reported a loss in the six months to the end of June, citing a list of factors that include weak demand and lower international prices, compounded by rail capacity bottlenecks and load-shedding.
Just 16 months ago the share price fetched R10 before a steady decline took it to a close of R1.75 on Tuesday, the lowest level since April 2021. In its heyday in 2009, an Amsa share was worth R90.
Amsa incurred a headline loss of R448m during the first half of 2023 versus a headline profit of R3bn in the prior matching period.
“It is a tough environment for a cyclical single commodity producer,” said Devin Shutte, head of investments at The Robert Group, adding that the market is concerned about the company’s future profitability.
Another potential red flag is its net debt of R2.9bn relative to its market cap of R1.9bn. “The sustained share price pressure indicates the company may not be able to reverse the decline in profitability and an increase in debt sufficiently,” Shutte said.
Amsa, like many commodity producers, is at the mercy of the commodity markets which are in turn highly dependent on the global economy.
Steel demand in Amsa’s core SA market remains lacklustre, though the push into renewable energy to mitigate the unreliable mainly coal-fired electricity supply is expected to ameliorate the situation in the medium term.
CEO Kobus Verster has said SA’s steel consumption has dropped an estimated 20% over the past seven years.
The group’s margins are eroded by high input costs such as iron ore and coking coal prices and compounded by rail capacity constraints.
Amsa has had to use trucks to carry its raw materials and finished steel products in a stopgap measure that has resulted in additional costs. The rail network, operated by state-owned logistics company Transnet, has been hampered by the lack of spare parts and copper cable theft.
Amsa is also facing competition from steel imports as well as load curtailment that inhibited output during the interim period.
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