ArcelorMittal poised to bounce back into profit

Ending a three-year drought.
The improved outlook is most welcome from a company that has reported profits in just one out of the last five years. Image: Waldo Swiegers/Bloomberg

Steel producer ArcelorMittal expects to end its three-year profit drought with earnings per share of between R5.80 and R6.10 for the full year to December 2022, according to a Sens announcement released on Tuesday (January 25).

“The headline earnings per share are expected to improve from R1.90 headline loss per share for the comparative period to a headline profit per share within a range of R6.00 and R6.30 per share for the period (representing an improvement of more than 100%),” says the Sens announcement.

The company has reported profits in just one out of the last five years, citing sluggish domestic economic growth, volatile currency movements, Covid shutdowns, Chinese production cuts and regulated tariffs among the reasons for the poor performances.

Once the Covid lockdowns were announced in early 2020, some were questioning whether ArcelorMittal could survive.

The board itself in the 2020 annual report outlined the fragility of its commercial underpinnings: “In 2020 ArcelorMittal South Africa confronted uncertainties and threats to its very survival which few steelmakers anywhere in the world had ever contemplated,” it said.

“In the previous year – indeed in most recent years – our financial fortunes were so tenuous that our sustainability was being questioned by some of our most important stakeholders.”

The economic consequences of the Covid shutdowns on steel demand were evident in the 20% fall in SA’s apparent steel consumption to 3.7 million tonnes for the year to December 2020, according to the company’s 2020 financial results.

Financial performance was also impacted by increases in steel imports from Russia, China and Taiwan.

The company was also affected by the civil unrest in July 2021, which impacted production and shipments.

International steel prices strengthened in 2021, giving steel producers a reprieve from the brutal margin cuts of the previous two years.

Turnaround efforts

In 2018, ArcelorMittal announced sweeping initiatives to return the group to profitability and generate sustainable positive cash flows.

Evidence of this transformation started to appear in the results for the year to December 2019, when its internal business transformation programme yielded R1.5 billion in benefits – a feat that was matched in 2020.

Global steel production remained flat in 2020 at about 1.8 billion tonnes, resulting in steel rebar prices declining 3% and average international US dollar steel prices falling 4%.

By 2020, ArcelorMittal’s production and sales volumes fell to roughly half what they were in 2018 as the Covid economic crash started to bite. Plant utilisation dropped to 49% in 2020, but had returned to 80% in the first part of 2021.

There was evidence of a turnaround in 2021, with the expectation that financial performance would register a healthy improvement in the second half of the year.

Source: ArcelorMittal 2020 results presentation

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