Steel producer ArcelorMittal South Africa (Mittal) reported weaker headline earnings of R106-million for the six months to June 30, 2012, a sharp decline from the R668-million reported for the corresponding period of 2011. But the performance did represent a R826-million turnaround from the headline loss of R720-million reported for the output-constrained second half of last year.

The group, led by Nonkululeko Nyembezi-Heita, revealed that domestic steel demand had been weaker than anticipated during the second quarter, when the group slumped to a headline loss of R177-million, and warned that the outlook for the third quarter was equally bleak.

“Due to a further deterioration in market conditions, third-quarter financial results are expected to extend the headline loss incurred in the second quarter on the back of lower steel prices and a further decline in domestic demand, partly offset by improved commercial coke sales,” the company said in a statement to shareholders.

Mittal reported improved operational stability during the period and “no major incidents”. But sales were lower, and higher domestic prices were not sufficient to offset higher input costs.

Revenue climbed 7% to R17.8-billion, on the higher prices for the period. However, the cash cost of producing hot-rolled coil increased by 11%, while the costs associated with producing billets rose 13%.

Underlying the cost increases was a 20% rise in the price of iron-ore, a 19% increase in electricity costs, a rise of 12% in local coking coal prices and a 2% increase for imported hard coking coal. The result was a 72% year-on-year fall in operating profit to R260-million.

Liquid steel production was 11% lower, at 349 000 t, on the comparable period in 2011, but 15% better than the previous six months, which had been afflicted by significant production losses primarily as a result of the dust catcher failure at the Newcastle mill.

"Mitigating the expected loss is a potential insurance pay-out resulting from claims currently in the process of finalisation. Movements in the exchange rate will also have an important impact," the company said.

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