ArcelorMittal SA Faces Steep Losses in Tough Economy

  • ArcelorMittal South Africa issues a trading statement projecting substantial losses in the six months ending 30 June 2023.
  • Challenging economic conditions, including electricity loadshedding, high inflation, and negative growth in key steel-consuming sectors, impact the company's financial performance.
  • The steel producer is taking remedial actions to improve its net borrowing position and plans to release its financial statements on 27 July 2023, followed by a virtual presentation to stakeholders.

ArcelorMittal South Africa Limited, one of the country’s leading steel producers, has issued a trading statement and business update for the six months ended 30 June 2023, indicating an expected decline in financial performance compared to the previous corresponding reporting period.

MetricComparative Period2023 ForecastVariance
Earnings per Share (EPS)R2.76Loss: R0.30 – R0.38-111% to -114%
Headline Earnings per Share (HEPS)R2.71Loss: R0.38 – R0.46-114% to -117%

The trading statement, issued in accordance with the JSE Limited Listings Requirements, suggests that ArcelorMittal South Africa’s financial results for the first half of 2023 will be significantly impacted by challenging market conditions both domestically and internationally.

In the business update, the company explained that despite signs of improvement in the international trading environment in the first half of 2023, the local market faced various adverse factors. These included electricity loadshedding, high inflation, rising interest rates, and negative growth in key steel-consuming sectors like manufacturing, autos, mining, and construction, which all contributed to dampened consumer confidence.

ArcelorMittal South Africa adopted a flexible approach to its operations, adjusting fixed costs according to the available order book and implementing a cash management process. However, the severity of electricity loadshedding in the last six months proved to be underestimated, resulting in challenges in responding promptly to adjust production in a responsible and cost-effective manner.

The company also faced a weaker pricing environment and struggled with cost compressibility issues, leading to an expected weaker financial performance for the reporting period compared to the previous comparable period.

Furthermore, the release of working capital proved to be more challenging than anticipated, leading to the net borrowings position remaining at elevated levels. To address this issue, the company is implementing remedial actions to improve its net borrowing position in the face of a prolonged weak steel trading environment in the region.

The unexpected downturn in ArcelorMittal South Africa’s financial performance highlights the broader economic challenges facing the country and the steel industry. Despite positive movements in early 2023’s international steel prices, the company struggled to capitalize on these gains due to the harsh local economic conditions.

The electricity loadshedding, a measure taken by the government to reduce energy consumption during supply shortages, severely impacted the company’s ability to maintain a steady production rhythm in its continuous, integrated steel-making process. This, combined with the negative growth in key sectors, further compounded the challenges faced by the steel producer.

ArcelorMittal South Africa’s predicament is reflective of the broader steel industry’s situation in the region. With energy constraints, high inflation, and negative growth, several steel-consuming sectors struggled to gain momentum, leading to subdued consumer confidence and limited opportunities for growth.

In light of the financial difficulties and the prolonged weak steel trading environment, ArcelorMittal South Africa is actively working on remedial actions to improve its net borrowing position. However, the road to recovery may be long and arduous, as the company navigates through the current economic headwinds.

Stakeholders, including shareholders, employees, and customers, await the release of the company’s reviewed condensed consolidated financial statements for the six months ended 30 June 2023. This comprehensive financial report, scheduled to be released on the Stock Exchange News Service (SENS) on 27 July 2023, will provide deeper insights into the company’s financial position and its strategies for overcoming the challenges in the months ahead.

ArcelorMittal South Africa’s virtual presentation, accompanying the financial statements release, will serve as a platform for the company’s leadership to communicate directly with stakeholders and outline their plans for navigating the tough market conditions.

As the steel industry grapples with ongoing economic challenges, the hope remains that government measures and market conditions will improve, providing a more favorable trading environment for ArcelorMittal South Africa and other companies operating in the sector. Nonetheless, the road to recovery may require resilience, adaptability, and strategic decision-making in the face of uncertain times.

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