ArcelorMittal SA shares crash after headline earnings expected to tumble into red on rolling blackouts

ArcelorMittal is sub-Saharan Africa’s largest steelmaker, and it is in a power-intensive industry. So, when the lights go out, it illuminates South Africa’s path to deindustrialisation. 

The company issued a trading system on Tuesday for its financial performance in the first six months of 2023 that underlined the toll of the power crisis on heavy industry.  

It said it expected headline earnings per share to topple into the red, from a R2.71 headline profit per share for the comparative period to a headline loss per share within a range of between R0.38 and R0.46 per share, largely because of the surge in rolling blackouts. 

This knocked its share price almost 43% lower.  

“The softness of the market amidst the unprecedented severity of the electricity load shedding in the last six months was very much underestimated, which in turn affected the response time with which production could be adjusted in a responsible and well-considered manner,” the company said.  

“Building and maintaining any semblance of operating rhythm, which is an absolute necessity in running a continuous, integrated steelmaking process in a cost-aware manner, proved especially problematic.” 

The scale of the power cuts was simply not conducive to the production of steel, and the market turned much worse than the company anticipated in February when “it was indicated that, barring the impacts of load shedding and rail service unreliability, the six-month outlook for the trading environment appeared to be improving compared to the difficult close to 2022”. 

Such cautious optimism subsequently sunk like a steel bar.  

“The international trading environment in the first half of 2023 benefitted from the end to de-stocking and less painful energy prices,” the company pointedly noted.  

But local headwinds blew all that away.  

“However, locally, the trading environment caught no such tail-winds, as the burden of electricity load shedding, high inflation and interest rates, and negative growth in key steel consuming sectors such as manufacturing, autos, mining and construction affected already fragile consumer confidence,” the company said.  

“Furthermore, the anticipated release of working capital proved to be much more difficult, resulting in the net borrowings position remaining at elevated levels. Remedial actions are under way to improve the company’s net borrowing position in the wake of the weaker-for-longer steel trading environment in the region.”  

More guidance will be provided when the company releases its interim results on 27 July.  

ArcelorMittal is not a big company in JSE terms — it’s not even in the Top 40 blue chip index. But the company, which once provided the spine for South African industrialisation when it was Iscor, still accounts for more than half of South Africa’s steel production.  

South Africa, given its logistical woes and the weak rand, can hardly import steel to fill ArcelorMittal’s gap. The company is in many ways a barometer of the economy and industrialisation. Its woes go well beyond its shareholders or workforce. DM