More pain for ArcelorMittal as headline losses expected to widen

Monday brought more bad news from ArcelorMittal SA (Amsa) just as it starts the process of shutting down its Newcastle and Vereeniging steel plants, which have been hit by low-cost imports from China.

A trading update says the headline loss per share is expected to decline by between 165% and 174% for the year to December 2024.

The loss per share will likely range between R4.50 and R4.66, compared with a loss per share of R1.70 for the previous financial year.

A month ago, the company issued a trading update advising that headline losses per share would decline by 139-159%.

The news is slightly better at the earnings per share (EPS) level, which is expected to decline by 46-52%, or a loss per share of between R5.14 and R5.34, compared to a loss of R3.52 per share for the prior year.

The January 2024 trading update advised that the loss per share would be between R5.48 and R6.21.

ALSO READ: ArcelorMittal closing down long-steel works, cutting about 3 500 jobs

The challenges

Amsa first announced its decision to place its long steel business in care and maintenance in November 2023 due to weaker economic conditions, transport and energy difficulties, and low-cost imports from China.

Announcing its results for the six months to June 2024, Amsa said it would continue with its long steel production, which would save 3 500 direct jobs and 80 000 more across the value chain.

That decision has since been reversed with the announcement that its mills in Newcastle and Vanderbijlpark will close.

Amsa has called on government to raise tariffs on steel imports to save SA’s domestic steel production, and to review its subsidisation of scrap-based steel makers that compete with it.

Producers using scrap metal as their feedstock receive a 30% discount on market prices through a price preference scheme that has been widely criticised for distorting the local market and benefitting so-called mini-mills, to which the Industrial Development Corporation has a roughly R14 billion exposure.

Local scrap mills also benefit from a 20% tax on exports of steel.

ALSO READ: ArcelorMittal shutdown: worry about socio-economic catastrophe

Bailout?

Business Times reported that Trade, Industry and Competition Minister Parks Tau and Finance Minister Enoch Godongwana have crafted a rescue package for Amsa of about R1 billion.

However, the proposed bailout faces stiff opposition from those who fear that this may not be enough to save Amsa, and which may require further bailouts in the future.

Last month President Cyril Ramaphosa met with ArcelorMittal chair Lakshmi Mittal at the World Economic Forum in Davos, Switzerland, to avert the proposed closure of Amsa’s steel mills.

The closure of the steel mills would be a blow to Ramaphosa’s plans for an economic revival based on massive infrastructure investment.

The planned closure of Amsa’s steel mills has prompted calls from some for the complete scrapping of duties on steel, which would allow for cheap imports, mainly from China.

This article was republished from Moneyweb. Read the original here.