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Mining strike aggravates already weak SA steel market – AMSA

Source: Engineering News Date: 12 May 2014

South Africa’s largest steel producer ArcelorMittal South Africa (AMSA) does not expect South Africa’s weak domestic steel market to show any sign of recovery until after June, and has warned that the protracted platinum industry strike is exacerbating already weak trading conditions across the key steel-consuming sectors of mining, manufacturing and construction.

The group was able to partially shrug off weak domestic market conditions in the first quarter to March 31, 2014, owing to higher exports sales and prices. It reported headline earnings of R323-million, from a loss of R270-million during the same period last year.

However, results during the comparable period in 2013 were seriously affected by a fire at the Vanderbijlpark mill, which resulted in an eight-week stoppage and a 361 000 t production loss.

Acting CEO Dr Hans Rosenstock says domestic market conditions have been tough for the first few months of 2014, with sales falling 11% in the first quarter relative to the same period in 2013. They are also likely to remain difficult and subdued in the second quarter to the end of June.

Chief marketing officer Sunil Kumar says mining sales, which represent about 12% of overall sales, have been significantly affected, directly and indirectly, by the ongoing strike in the platinum industry, as well as overall negative mining investment sentiment that has prevailed for the past few quarters.

“Out estimation, given the current climate in the market, is that we will only see improvement post quarter two,” Kumar says, noting that construction demand also remains flat, while the Purchasing Managers Index indicates low levels of confidence in the manufacturing sector.

The first quarter results were also buoyed by a 70% increase in export shipments and a rise in average net realised prices. However, AMSA faced headwinds on both fronts during the current quarter, with recent recovery in the rand having made imports more attractive and exports marginal.

Kumar says it might not be possible for the group to sustain the price increases of the first quarter, which were set using an average rand/dollar exchange rate of R10.87. The local currency has since recovered to better than R10.40 to the dollar.

“If the rand remains at this level, we will have to review our prices, particularly on flat product,” Kumar reports.

$80M NEWCASTLE KNOCK

Earnings for the upcoming two quarters would also be negatively affected by the R1.6-billion reline of the Newcastle blast furnace, which would begin on May 12 and will continue for four months.

The group’s cash position had already reduced from R1.1-billion in early 2013 to a negative R191-million, owing to the build-up of metal stocks in preparation for the outage.

Long-product stocks stood at 460 000 t ahead of the reline, having been built up to ensure that the domestic market remains supplied for the duration of the shutdown. Of that amount, 120 000 t has been imported at significant cost.

CFO Matthias Wellhausen estimates that the additional costs associated with the project, together with a reduction in production and sales, will result in a negative $40-million earnings before interest, tax, depreciation and amortisation impact in the second quarter and a further $40-million impact in the third quarter.

“So overall, it is going to have quite a significant impact on our full year results,” Wellhausen warns

South Africa’s largest steel producer ArcelorMittal South Africa (AMSA) does not expect South Africa’s weak domestic steel market to show any sign of recovery until after June, and has warned that the protracted platinum industry strike is exacerbating already weak trading conditions across the key steel-consuming sectors of mining, manufacturing and construction.

The group was able to partially shrug off weak domestic market conditions in the first quarter to March 31, 2014, owing to higher exports sales and prices. It reported headline earnings of R323-million, from a loss of R270-million during the same period last year.

However, results during the comparable period in 2013 were seriously affected by a fire at the Vanderbijlpark mill, which resulted in an eight-week stoppage and a 361 000 t production loss.

Acting CEO Dr Hans Rosenstock says domestic market conditions have been tough for the first few months of 2014, with sales falling 11% in the first quarter relative to the same period in 2013. They are also likely to remain difficult and subdued in the second quarter to the end of June.

Chief marketing officer Sunil Kumar says mining sales, which represent about 12% of overall sales, have been significantly affected, directly and indirectly, by the ongoing strike in the platinum industry, as well as overall negative mining investment sentiment that has prevailed for the past few quarters.

“Out estimation, given the current climate in the market, is that we will only see improvement post quarter two,” Kumar says, noting that construction demand also remains flat, while the Purchasing Managers Index indicates low levels of confidence in the manufacturing sector.

The first quarter results were also buoyed by a 70% increase in export shipments and a rise in average net realised prices. However, AMSA faced headwinds on both fronts during the current quarter, with recent recovery in the rand having made imports more attractive and exports marginal.

Kumar says it might not be possible for the group to sustain the price increases of the first quarter, which were set using an average rand/dollar exchange rate of R10.87. The local currency has since recovered to better than R10.40 to the dollar.

“If the rand remains at this level, we will have to review our prices, particularly on flat product,” Kumar reports.

$80M NEWCASTLE KNOCK

Earnings for the upcoming two quarters would also be negatively affected by the R1.6-billion reline of the Newcastle blast furnace, which would begin on May 12 and will continue for four months.

The group’s cash position had already reduced from R1.1-billion in early 2013 to a negative R191-million, owing to the build-up of metal stocks in preparation for the outage.

Long-product stocks stood at 460 000 t ahead of the reline, having been built up to ensure that the domestic market remains supplied for the duration of the shutdown. Of that amount, 120 000 t has been imported at significant cost.

CFO Matthias Wellhausen estimates that the additional costs associated with the project, together with a reduction in production and sales, will result in a negative $40-million earnings before interest, tax, depreciation and amortisation impact in the second quarter and a further $40-million impact in the third quarter.

“So overall, it is going to have quite a significant impact on our full year results,” Wellhausen warns

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