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Friday, November 4, 2011

Mittal suffers loss after furnace fails

Conditions in struggling South African steel industry worsen over the past quarter

Friday, November04, 2011

ArcelorMittal SA reported a R460m headline loss for the third quarter ended September, following the failure of the blast furnace system at its Newcastle works in KwaZulu-Natal, and a sharp rise in input costs.

This compares with headline earnings of R473m for the previous quarter, and R68m for the same period last year.

The group also said yesterday that operating conditions in the steel industry had deteriorated sharply over the past quarter, with the weaker trend in SA’s economy having a big effect on major steel consumers. Strike s in the sector in July hit deliveries, with customers forced to delay orders.

"It has been a difficult and challenging quarter," CEO Nonkululeko Nyembezi-Heita said yesterday. "The Newcastle incident resulted in a substantial loss of production with a concomitant effect on our quarterly results."

She said to ease the effect on customers, 240000 tons of steel was secured in SA and globally, from ArcelorMittal Group mills, and dispatched from mid-October. This still left the market short, with a knock-on effect in the mainstay building and construction sector.

Most of ArcelorMittal SA’s key drivers exhibited stable to negative trends, with raw material prices rising further, and electricity costs soaring 25%. But the firm said strong growth was experienced in Kenya and Zambia, with increased activity in the construction and mining sectors.

"Management (said) at the half-year results that the third quarter would be tough, but the Newcastle furnace issues resulted in a much poorer result," Rubin Renecke, equity analyst at Kagiso Asset Management, said yesterday. "Globally, steel demand remains sluggish ... (but) the weaker rand against the dollar should be positive for local steel pricing going forward."

Year on year, revenue in the quarter rose 5% to R7,6bn, following an 11% increase in average net realised prices, but was considerably down from R8,8bn in the preceding June quarter. Overall steel sales were flat at 1,1-million tons, with long steel products falling by 10%, while flat steel products rose 4%.

Revenue from ArcelorMittal SA’s coke and chemicals division declined 38%, following a 40% decline in commercial coke sales and an 11% drop in average net realised prices. Sales were also hampered by weaker seasonal demand from the ferro-alloy industry due to high winter electricity tariffs, and the poor state of the stainless steel industry.

Liquid steel production fell 17% to 1,2-million tons in the quarter, mainly as a result of the structural failure at Newcastle.

(sourced BusinessDay)

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