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Johannesburg - International steel consultancy Meps is doubtful whether South Africa's steel industry is on the mend, even though local firms predicted an improvement in demand towards year-end.
"The domestic economy remains troubled by anaemic economic fundamentals. The manufacturing industry has been more positive of late, but this optimism is yet to be backed up by solid orders," said Meps.
To date, the steel industry has carried out a series of destocking bouts to clear the market of surplus supplies.
These excess supplies lowered demand over the past year and caused manufacturers to operate at less than full capacity. SA's largest steelmaker, ArcelorMittal South Africa (Mittal SA), reached a stage where it was producing at about 70% of total capacity, although that has been creeping up to 90% lately.
"Results in the fourth quarter of 2009 are expected to strengthen further as improved domestic demand drives higher sales," said Mittal SA CEO Nonkululeko Nyembezi-Heita at a recent media session.
However, Meps said it has not seen any evidence in firms' order books to back up claims of increased demand. "Traditional export markets in the southern Africa region are reeling from the global downturn," it said. "It is still uncertain when full output will be achieved."
Miriam Hehir, an analyst for the Royal Bank of Canada capital markets, has Mittal SA set to "outperform" the sector average over 12 months in a recent research report.
Rating agencies Moody's and Fitch have Mittal SA on a stable outlook, while Standard & Poor assessed the company's outlook as negative.
- Fin24.com
