Share prices in ArcelorMittal South Africa (Amsa) slid as much as nearly 22% yesterday, after it flagged that for the year ended December 31, 2022 its earnings were expected to fall as much as 63% due to steel prices dropping.
The shares dropped to an intra-day low of R3.72, having closed the previous day at R4.75. By 3.36pm the share had recovered somewhat to trade at R4.19 on the JSE. They have declined by 23.39% in the past six months.
In its trading statement and business update released yesterday, the steel-making group said the earnings per share declined from R5.94 profit per share for the comparative period to a profit within a range of R2.20 and R2.50 per share for the period, representing a decrease of between 58% and 63%.
Headline earnings per share (Heps) were also expected to decline from R6.15 headline profit per share for the comparative period to a headline profit per share within a range of R2.15 and R2.45 per share for the period, representing a decrease of between 60% and 65%.
In its interim results in July, Amsa had indicated that the outlook for the coming six months was strongly influenced by intensified economic headwinds, which threatened to significantly affect the trading environment for steel.
“As anticipated, the international price correction in a soft local demand environment did significantly impact the financial results of the business,” it said.
The steel producer said globally, steel prices had declined at a faster rate than raw materials.
“This has led to negative price-cost effects with spreads (the difference between steel prices and raw material costs) under significant pressure,” it said.
Amsa said the company could not escape the impact of the year’s energy crunch, as seen in the extreme increase of imported coal prices, up 117% year-on-year.
However, domestically, market conditions proved to be challenging as customers aggressively destocked.
“This was particularly notable in the last quarter of the year, where market activity dissipated dramatically in certain sectors, being somewhat reminiscent of late 2008,” the group said.
An aspect of the business that unexpectedly came under significantly more pressure than initially anticipated was the net borrowing position.
“Having successfully improved average capacity utilisation in the second half (54%) compared to the first half (42%) of the year, the suddenness of slowdown in market activity in the latter part of the fourth quarter was greatly aggravated by a notable shortage of readily available road trucks for sales deliveries.
“The well-publicised rail logistic failures on the country’s coal export rail corridors, and the very attractive prices offered for that product resulted in a dramatic and unexpected shortage of road trucks for domestic and Africa overland deliveries in the last quarter of the year,” it said.
The group said it published its decarbonisation roadmap, with the goal to become a net-zero steel business by 2050.
Amsa CEO Kobus Verster said: “The decarbonisation roadmap is based on clear actions that can support the achievement of the company’s decarbonisation targets.”
Anchor Capital investment analyst Seleho Tsatsi said, “Amsa did R2.71 in Heps in the 2022 first half.”
“The mid-point of the 2022 financial year Heps range is R2.30, suggesting a Heps loss of about R0.40 in the second half,” Tsatsi said.
“Optically, the share has looked cheap, trading at a low single-digit P/E (price to earnings) multiple, but the cyclicality of the business means profitability can swing strongly from period to period,” he said.
Amsa said it would release its annual financial results on February 9.
BUSINESS REPORT