AMSA slumps to a loss after toughest year

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AMSA slumps to a loss after toughest year

Published Date: 2020-02-07 | Source: Stephen Gunnion | Author: Stephen Gunnion

AMSA slumps to a loss after toughest year

The steel producer has faced falling prices for its products, rising input costs and weak demand due to the stagnant local economy.

ArcelorMittal SA (AMSA) says last year was the most challenging for the world steel industry since the global financial crisis, with the correlation between steel prices and raw material costs breaking down. To make matters worse for the company, it was also a tough year for the SA economy, affecting local demand for its products.

While the weaker rand cushioned a 15% average decline in international steel prices, local steel consumption fell 6% to 4.5 million tonnes for the year. The steel producer listed muted or negative growth in key steel consuming sectors, a limited number of infrastructure projects, electricity supply constraints, and low business confidence among the contributing factors. The situation was made worse as some credit line insurers exited the steel market, reducing the availability of credit. It also had to compete with a rise in total steel imports to 918,000 tonnes, which contributed about 20% of the country's apparent steel consumption, up from 16% in 2018. This was largely due to the diversion of hot rolled coil from countries with high trade protection measures to those with lower trade protection, it said.

For the year to end-December, group revenue fell 9% to R41.4 billion as sale volumes declined by 8%. The price of raw materials including iron ore, coking coal and scrap rose an average 12% in rand terms. They make up just over half of AMSA's costs. Adding to that were increases in electricity, port and rail tariffs, which it said resulted in additional expenses of R439 million, impacting its ability to compete internationally.

The group trimmed total fixed costs by close to R1 billion, or 12%, but still reported a loss of R4.68 billion for the year, down from a R1.37 billion profit in the comparative period which included a R415 million profit from the disposal of its investment in Macsteel. It reported a headline loss per share of 299c against an 89c per share profit previously.

As part of a strategic asset footprint review aimed at improving profitability, the group has cut jobs and is winding down its Saldanha Works operation, which is expected to be completed by the end of the March. The second phase of its strategic asset footprint review has focused on its long steel products business but it doesn't expect to close any significant long steel product plants in the foreseeable future. Instead, it plans to reconfigure its operating model onto a single platform and strengthen its balance sheet through targeted corporate actions, including the disposal of non-core properties.

Its shares fell 4% to R1.20 yesterday.





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