Are steel duties enough to aid ArcelorMittal?
JOHANNESBURG – ArcelorMittal South Africa appears to have received a lifeline from government, in the form of increased duties on imported primary steel and steel products. But is this protection against cheap imports enough to ensure the steelmaker’s survival?
In an operational update late last week, Africa’s largest steelmaker said government had increased custom duties on imported primary steel from 0% to a bound rate of 10% and imposed further duties on wire rod and rebar with effect from 18 December 2015.
It said it expects final decisions on the remaining seven applications for protection submitted to the International Trade Administration Commission (ITAC) early this year and announced that it applied for additional safeguard duties against a range of products in December last year.
ArcelorMittal said the tariffs, together with its cost-cutting measures, “have a reasonable prospect of returning the company to profitability in the medium term”.
Shares in the company have since rallied more than 37% to close at R5.71 on Monday 11 January, with the bulk of the gains – 25.28% – registered on Friday 8 January. The number of items subject to duty were higher than expected, giving rise to a higher level of protection and a steeper increase in share prices, said Wayne McCurrie from Momentum Wealth Portfolio Management. He added that every day the rand weakens helps the company by providing indirect protection.
In a November 6 business update, ArcelorMittal said global steel prices fell by some 50% during the 20 months prior while domestic prices fell almost 40% over the same period. It said almost 90% of the contraction in domestic prices came about after December 2014. This coincides with an influx of imports from China. According to the company, South Africa usually sources about 30% of carbon steel from China per annum but this increased to 49% in 2014 and 64% as at 6 November 2015.
The company has reported losses for four years and has already warned that its headline loss for the financial year ending December 2015 will be 11 times greater than that recorded the year before.
According to McCurrie, ArcelorMittal’s woes have little to do with the company itself. “Primarily, the fault of ArcelorMittal is not ArcelorMittal’s fault. Their primary fault is that they are too small a producer to be competitive on a global scale,” McCurrie said, noting that fixed costs among steel producers are relatively similar in spite of their respective sizes. In addition to dumping, he said other factors beyond the company’s control include weak local demand and the poor performance of the local mining and manufacturing sectors.
“On the global front it faces an almost unprecedented commodity glut of which iron-ore, coal and their downstream products are flooding both the international and local market. As these cheap commodities wash up on South African shores pricing competition intensifies and sales volumes decrease,” Rand Swiss Portfolio Manager Gary Booysen said via email.
He commended management for recognising the changing nature of the local steel industry and that “without change ArcelorMittal, in its current form, will not survive”. But said the increased protectionism is unlikely to create the desired sustainable economic and financial turnaround the company needs.
“With the group’s earnings still highly geared towards production volumes and metal prices [and as such subject to additional risk and volatility] we are still avoiding the stock. While value investors might be getting interested with the stock trading at a significant discount to NAV [and government tariffs will help the share price] we do not see signs of a sustained turnaround in this counter yet,” Booysen said.
McCurrie pegged the company as a “very risky buy”, saying the prospects for the South African economy do not look good. He said ArcelorMittal’s prospects would also depend on the Chinese economy and whether global steelmakers would cut production in order to stem dumping.
http://www.moneyweb.co.za/news/companies-and-deals/are-steel-duties-enough-to-aid-arcelormittal/
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JOHANNESBURGO - ArcelorMittal Sudáfrica parece haber recibido una línea de vida del gobierno, en forma de aumento de los derechos sobre productos de acero y de acero primarios importados. Pero es esta protección contra las importaciones baratas suficiente para asegurar la supervivencia de la siderúrgica?
En una actualización operativa de la semana pasada, la siderúrgica más grande de África dijo que el gobierno había aumentado los derechos de aduana sobre el acero primaria importada de 0% a un tipo consolidado del 10% y el impuesto nuevas obligaciones en alambrón y barras de refuerzo a partir del 18 diciembre de 2015.
Se dijo que espera que las decisiones finales sobre los siete restantes solicitudes de protección presentadas a la Comisión de Comercio Internacional de Administración (ITAC) a principios de este año y anunció que solicitó derechos de salvaguardia adicionales contra una gama de productos en diciembre del año pasado.
ArcelorMittal dijo que los aranceles, así como sus normas de reducción de costos, "tiene una posibilidad razonable de regresar a la empresa a la rentabilidad en el mediano plazo".
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