ArcelorMittal - Buying Opportunity?

3 August 2018 By PDSNET

The steel industry in South Africa is a very important industry because its production supports so many downstream industries and businesses. For this reason, the government has been sympathetic to ArcelorMittal’s call for tariffs on certain steel products which have been systematically dumped on the South African economy by the Chinese. China is the largest steel manufacturer in the world and has traditionally consumed all of the steel it produced and even imported steel. But with the sub-prime crisis in 2008, the demand for Chinese products fell substantially and this led to a glut of steel in the country. The solution was for China to sell their surplus steel to other countries – and they were prepared to take very low prices. South Africa is not the only country to have suffered from this. For example, the Americans have just implemented heavy tariffs on Chinese steel and so have other countries. South Africa was slow to react and this has damaged our local steel industry. ArcelorMittal is South Africa's largest steel producing company and it has survived where companies like Highveld Steel have disappeared. Because of the Chinese dumping, ArcelorMittal probably felt the impact of the sub-prime crisis more than any other listed South African company and has fallen from its high of R260 in June 2008 to as low as 215c at the end of May this year. It has had to deal with the collapse of the concurrent construction industry locally, which was a major consumer of steel. Fortunately, Chinese imports of steel into South Africa have slowed down somewhat, partly because ArcelorMittal was eventually successful in getting certain tariffs to discourage imports approved, but mainly because of the strong recovery of the US and other world economies which increased the demand for Chinese products containing steel. In its most recent results for the six months to 30 June 2018, ArcelorMittal shows a considerably improved business. The operating loss of just under R1bn in the previous period was turned into a profit of R1,22bn and the headline loss of R1673m was turned into a profit of R54m. This turnaround has been achieved on the back of improved exports (which are up 26%) and better international prices for steel. The group has also managed to implement significant cost-cutting and debt levels have been reduced substantially from R3,3bn to R1,9bn and that is before the sale of their 50% interest in Macsteel for $220m (R3bn). So we expect that their balance sheet will become very strong once this deal is complete. Now let us consider the chart:

ArcelorMittal (ACL) May 2018 to July 2018 - Chart by ShareFriend Pro
Technically, the share is showing definite signs of turning up with a clear "saucer bottom" or “island” formation in May, June and July followed by an upside breakout. We believe that this share will benefit from any significant improvement in the local economy while at the same time benefiting directly from improvements in the international economic recovery. But we stress that it remains a commodity share and subject to the risks of international commodity prices.


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

Gold and Harmony

In our last Confidential Report, published on 6th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold

Reverse Takeover

At the end of October 2023, Mix Telematics (MIX) was a relatively small fleet management company with a market capitalisation of just R2,3bn listed on both the JSE and the American NASDAQ. Its shares on the JSE were wallowing at a low of 380c. This compares with its competitor, Karoo (KRO), also listed on the JSE, but which was at the time, more

Rare Opportunity

You may not have been aware of it, but last week, between Monday and Friday, there was an opportunity to make an 80% profit on your capital. This opportunity occurred because of insider trading on a little known and traded share called Quantum Foods (QFH) in the poultry and animal feeds business.

Generally, the poultry business is

Excessive Bullishness

On Friday last week, the S&P500 index posted yet another new record closing high, but this time just one point higher than the previous day at 5088. This means that the index, which measures the progress of the 500 largest companies on Wall Street, has been climbing without a significant correction for nearly four months. Consider the chart:

Lessons from Transcap

As a private investor it is very important that you study what has happened in the past and learn from it. The progress of Transaction Capital (TCP) has provided us with an excellent opportunity to examine and learn from a complete cycle in an institutional favourite share. We can examine the entire cycle and see how to profit from it. In this regard, it is important

Sasol

Sasol is a company originally established in September 1950 by the National Party, to counter the possibility of petrochemical sanctions against the old South Africa. Essentially, Sasol used South Africa’s enormous coal reserves to generate about one third of its fuel requirements. Subsequently, Sasol became involved in the chemical industry which now accounts for about

4Sight

The world has, in the last twenty years, entered what has been characterised as the 4th Industrial Revolution (4IR). It has been described as “... the biggest structural change of the past 250 years — a transformation of scale, scope and complexity unlike anything humankind has experienced before.” In simpler terms, 4IR refers to the digital convergence of

The Great Bull Resumes

On the 12th of June 2023, we published an article, headed "Bull Trend?". In that article we suggested that, after a 25% correction, the great bull market on the S&P500 which began in March 2009 was still intact and would, in time break to a new all-time record high, above the high

CA Sales

In recent years, the JSE has not seen many high-quality, exciting companies listing on the exchange. One of those few is CA Sales Holdings (CAA), which offered both fund managers and private investors an excellent opportunity to make a significant capital gain last year.

CAA is a company which has grown

Two Elections and Two Wars

As the New Year begins, private investors should consider the most important factors which are likely to impact on the prices of shares and the profits of companies listed on the JSE. Some of these factors are local, like the general election which is expected to take place sometime in May, and some are international like the oil price, the