AMSA may reprice steel as rand strengthens

[miningmx.com] – ARCELORMITTAL South Africa (AMSA) may review its steel prices for flat products owing to the first quarter improvement in the rand against the dollar which makes it cheaper for domestic customers to import.

“If the rand remains at this level, we will have to review prices going forward but only for flat products,” said Hans Rosenstock, acting CEO of AMSA.

“We are trying to defend our market share,” he added. “What is critical is that we maintain a good service level to our customers. If customers order from China, it takes two months to arrive,” he said.

AMSA posted headline profits of R323m for the March quarter against a R270m loss in the corresponding period of the previous financial year. This equated to share earnings of 80 cents compared to a negative 69 cents/share previously.

Export volumes increased 5% in the March quarter but the rand has since regained a degree of strength against the dollar improving about 7% since mid-February when it hit its lowest level in more than five years of 11.3 to the dollar. The rand is currently trading at 10.36 to the dollar.

In addition to difficult local conditions, AMSA said it was faced with the R1.6bn reline of its Newcastle blast furnace due to start this month. As a result of the reline, AMSA was in a negative R191m cash position following the build-up of metal stocks in preparation for the work.

Said Rosenstock: “The South African market is very difficult. The reline always has negative impact on Ebitda (earnings before interest, tax, depreciation and amortisation). But we are improving service to customers and we will try to navigate a way through the difficult situation”.

Shares in AMSA slid about 34% in mid-February from when the rand regained some of its strength down to a low of R32,05 at the beginning of April. The stock has since improved and was last trading at R40,25/share.

Difficult conditions in South Africa’s mining and construction sectors had put a dampener on local trading conditions, the company said. AMSA’s direct exposure to the mining sector was 12% of sales.

There has been a significant impact by the [platinum] strike plus low business activity in the mining sector in general, the company said. There had also been “zero growth” in the construction sector with residential work the only source of new business.

“First, there has to be a bit more improvement in investment climate,” said AMSA. “The big civil projects need to come back. Eventually, we have to see mining scenario improve to see better demand. Our estimation is that current climate of market won’t improve in the second quarter,” it said.

Rosenstock said plans were afoot to appoint a full time CEO following the departure in the quarter of Nonkululeko Nyembezi-Heita who in December announced her intention to join Germany’s IchorCoal.

“The search process is on track,” said Rosenstock. “The final short list has been concluded. The top three shortlist candidates are going through the board process. Once the board is ready for it the selection committee decision will be announced,” he said.

Commenting on the international steel market, AMSA said that conditions were slowly starting to improve.

“After years of economic stagnation, slow growth coupled with rising inflation and unemployment rates, the troubled economies of Europe are finally starting to show signs of recovery and production in Europe rose 7.3% in the past quarter,” it said.