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Steel producer posts massive profit loss

By Don Robertson | Jul 30, 2009 | COMMENTS [ 0 ]

SOUTH Africa's biggest steel producer, ArcelorMitta, has posted a massive loss in profits of R848million for the first six months of the year.

The battered local and international steel industry, coupled with the strengthening of the rand, is believed to have contributed to the plunge in earnings.

In the same period last year, the company posted a profit of R4,5billion.

ArcelorMittal chief executive Nonkululeko Nyembezi-Heita said the performance was "like falling off a cliff".

The effect was a reduction in earnings to a loss of 190c a share versus a positive of 1027c a share.

Nyembezi-Heita said the first six months of the year proved extremely challenging "with a sharp decline in prices and demand for steel, exacerbated by excessively high inventory levels. At the same time our production costs reflected raw material input costs at historically-high contract prices, resulting in a severe margin squeeze".

She said the "remarkable and unexpected strengthening of the rand" had put additional downward pressure on the company's performance.

The rand averaged R9,9 to the dollar in the first half of last year compared with about R7,7 in the first half of this year.

But there are early indications that global demand could pick up slightly in the third quarter of this year.

The falling levels of stock held by local consumers could also spark an improvement in the next three months.

Revenue in the interim period fell sharply to R11,9billion from R18,4billion in the same half last year.

Total steel sales were 24percent lower at 2,1million tons while average selling prices were 9 percent lower than in 2008.

In addition, input costs remained high with coking coal stocks - the major cost factor - received at high prices. These will only be run out in the third quarter.

The cost of production for hot rolled coil rose by 28percent and billets by 18percent, compared with the first half of last year with production down to an average 60percent of capacity in line with demand.


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