Johannesburg - ArcelorMittal South Africa [JSE:ACL], a unit
of the world’s top steelmaker, on Thursday reported a rise in first-quarter
profit, but warned that a drop in domestic demand, lower steel prices and
higher costs would hit the second quarter.
The steelmaker reported first-quarter headline earnings per
share of 71 cents, compared with 49 cents in the same quarter last year and up
from a loss of 65 cents in the previous three months.
“Earnings for the second quarter 2012 are expected to be
substantially lower than the previous quarter due to lower domestic demand,
lower steel prices, higher costs such as electricity and transport and lower
sales of commercial coke due to the usual shutdown by the ferrochrome industry
during the winter months,” the company said in a statement.
The company, which sells 90% of its steel in Africa, said
first-quarter revenue rose 26% to R9.1bn compared with the previous three
months, with domestic steel shipments increasing by 37% and exports up 10%.
A major issue facing the South African unit is the outcome
of an ongoing dispute over iron ore prices with Kumba Iron Ore [JSE:KIO], a
unit of Anglo American [JSE:AGL].
The two firms have been at loggerheads over prices since
early 2010 after a preferential deal lapsed, and an arbitration hearing will
decide if the steelmaker can keep sourcing iron ore from Kumba at a discount.
The company has said it was confident the arbitration
hearing would rule in its favour although it may take until next year to
resolve the dispute. The company paid R1.1bn more for iron ore in 2011 due to
To mitigate the impact from further cost hikes, the firm in
April bought a 20% stake in an iron ore exploration project in South Africa’s
Northern Cape province.
The unit is also investing heavily in electricity projects,
hoping to reduce its reliance on power utility Eskom and steep increases in
power tariffs expected for the next few years.
Shares in the company are down more than 17% in the year to
date, compared with a 4.9% rise in the JSE All Share [JSE:J203] index.