Amsa posts headline loss on force majeure

Johannesburg - ArcelorMittal South Africa [JSE:ACL] has reported a headline loss of 67 cents a share in the quarter ended March 2013 compared with headline earnings of 71 cents for the same period a year ago‚ on a 15% drop in revenue to R7.766bn after a fire at the Vanderbijlpark steel plant in February.

The company declared a force majeure and took urgent steps to minimise the impact on customers by using existing stocks‚ re-directing material from Saldanha to the domestic market and importing slabs from sister plants in the group.

The repairs have been completed and full operations resumed during the second week of April. An estimated 361‚000 tons of production volumes were lost through the incident.

The company posted a headline loss of R270m for the quarter ended March 2013 compared with a headline loss in the preceding quarter of R456m and a profit in the corresponding period last year of R283m.

Liquid steel production was down 26% with capacity utilisation at 64% following the fire at Vanderbijlpark.

The cash improvement from R884m at the end of fourth quarter to R1.114bn reflected the continued management focus on strengthening the balance sheet through structural measures‚ as well as temporary actions to mitigate the impact of the fire.

The twin challenges of weak global demand and overcapacity continued to plague the steel industry. Economic recovery remains fragile and varies across regions‚ but signs of a renewed growth momentum have begun to emerge in recent months.

In China‚ strong signs of recovery continued after a relatively weak economic performance in most of 2012‚ as demonstrated by improved industrial output‚ retail sales and overall decline in consumer inflation‚ with construction activity providing an impetus for steel demand.

The eurozone‚ however‚ continues to languish with steel use at historically low levels. With the exception of South Africa‚ the rest of sub-Saharan Africa continued to offer steel market growth opportunities arising from the widely publicised infrastructure-related projects in energy and rail development‚ coupled with increased mining investment activities.

The impact of the global economic slowdown continued to affect the South African economy‚ with weakening demand for manufactured exports negatively affecting the country’s trade balance. Nevertheless‚ there were some positive trends in key data in recent months‚ mainly in the lower residential segment of the construction sector showing improving building activity.

However‚ the slow pace of infrastructure development continues to hamper domestic steel demand. The positive production trends in a number of manufacturing sub-sectors such as motor vehicles‚ electrical appliances and machinery were also a catalyst for steel demand as evidenced by a rise in the manufacturing purchasing index from the previous quarter.

The company expects a turnaround from the net loss realised in the first quarter to positive earnings in second quarter underpinned by stable market demand‚ recovery of production back to normal levels and higher sales volumes.

International steel prices are expected to remain subdued. The movement in the rand/US dollar exchange rate has an important bearing on the group’s earnings.