ArcelorMittal - Buying Opportunity?
3 August 2018 By PDSNET
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:
