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The JSE share price of steel producer ArcelorMittal South Africa (AMSA) fell by nearly 22% on January 24, after it warned of lower profits for the financial year ended December 31, 2022.
In a trading statement and business update, the steel producer said its earnings per share (EPS) for the financial year were likely to be between R2.20 and R2.50 – a decrease of 58% to 63% compared with the EPS of R5.94 reported for the 2021 financial year.
Similarly, headline earnings per share (HEPS) would be between R2.15 and R2.45 – a decrease of 60% to 65% compared with the HEPS of R6.15 reported for 2021.
Referring back to the presentation of its interim results in July 2022, AMSA reminded shareholders that it had expected the trading environment for steel to come under pressure during the second half of the 2022 financial year, owing to intensified economic headwinds.
It noted that, as expected, the international price correction in a soft local demand environment had a significant impact on the business's financial result for the period.
Globally, steel prices dropped at a faster rate than raw materials, leading to negative price-cost effects and significant pressure on spreads. The company also felt the effects of the energy crunch, with a 117% year-on-year increase in imported coal prices.
Domestically, market conditions proved to be particularly challenging as customers aggressively destocked. This was notably evident in the last quarter of the year, where market activity dissipated dramatically in certain sectors, reminiscent of the late-2008 financial crisis.
Further, AMSA’s net borrowing position over the six months to December 31, came under significantly more pressure than initially anticipated by the steel producer in July 2022.
Despite successfully improving average capacity use in the second half of the year, the sudden slowdown in market activity in the latter part of the fourth quarter was exacerbated by a notable shortage of readily available road trucks for sales deliveries, the company said.
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 pointed out.
Moreover, the company said it had invested a considerable amount of time, resources and capital in physical infrastructure to improve safety and environmental compliance.
DECARBONISATION ROADMAP
AMSA also announced that it had now published its Decarbonisation Roadmap, which was promised in 2021.
“The Decarbonisation Roadmap is based on clear actions that can support the achievement of the company’s decarbonisation targets . . . Implementation of our Decarbonisation Roadmap will not only change the way the company operates but will be a catalyst for changing the steel industry and the economy of South Africa,” AMSA CEO Kobus Verster said.
The Decarbonisation Roadmap will guide the work required to reach ArcelorMittal’s decarbonisation commitments. As the company progresses towards net zero, it believes that the implementation of AMSA’s systems, technology and intellectual property will represent real knowledge transfer to South Africa.
The company is confident in its ability to achieve net-zero emissions “thanks to the support of numerous allied experts and ongoing investments in the space”.
The Decarbonisation Roadmap is based on the implementation of clear actions and interventions. However, AMSA clarified that the roadmap was not cast in stone and would therefore be subject to regular updates and changes as breakthrough technologies emerge and are proven, which will influence how the company implements its energy transition.
AMSA will release its 2022 financial results on February 9.
Its share price on the JSE fell to R3.72 on the morning of January 24, but later regained some ground to trade at R4.05 a share by 12:00.