ArcelorMittal South Africa Limited, a unit of the world’s top steelmaker, on Tuesday reported a full year headline loss, hit by higher raw material costs and weaker sales, but said it expects a better first quarter.
The steelmaker’s production last year was hit by structural problems, including a furnace failure at its Newcastle plant, a strike in the steel sector and a shutdown at its Saldanha Works operation. The Newcastle plant has since resumed full output.
“We had to contend with unrelenting pressure on operating margins as production costs climbed 19% while steel prices only rose 12% on average,” Chief Executive Nonkululeko Nyembezi-Heita said in a statement.
Globally, steel producers are expected to report a weak fourth quarter on destocking and squeezed margins, underlining the need for consolidation of the industry.
Africa’s largest steelmaker reported a diluted full-year headline loss per share of 13 cents, compared with diluted headline EPS of 343 cents the previous year.
Headline EPS are the main profit gauge in South Africa and strip out certain one-time items.
The company, which sells 90% of its steel in Africa, said sales fell 7% to 4.7-million tonnes during the year, while revenue was up 4% to R31.5-billion.
“Earnings for the first quarter are expected to improve significantly due to production stability and higher sales volumes partially offset by lower international steel prices,” the company said in a statement.
The company declared no dividend.
Analysts say the main issue facing the steelmaker is the outcome of an ongoing dispute over iron ore prices with Kumba Iron Ore, a unit of Anglo American.
The two companies have been at loggerheads over prices for the steelmaking ingredient since early 2010. The case will go to an arbitration hearing, which will decide if the steelmaker can keep sourcing iron ore from Kumba at a discount.
ArcelorMittal said on Tuesday it was confident the arbitration hearing would rule in its favour.
To mitigate the impact from further cost hikes, the steelmaker is planning to invest in an iron ore source 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 firm are up 1.15% so far this year, compared with a 7.9% jump in the JSE Top-40 blue chip index. — Reuters