Bloomberg News

ArcelorMittal S. Africa Slumps on Weak Third-Quarter Outlook

July 27, 2011

(Updates with closing share price in the second paragraph.)

July 27 (Bloomberg) -- ArcelorMittal South Africa Ltd., Africa’s largest steelmaker, fell to the lowest in more than two years in Johannesburg trading after forecasting lower third- quarter earnings because of a drop in prices and sales volumes.

The stock slumped 6 percent to close at 69.75 rand, the lowest since March 2009. It was the worst performer on the 164- member FTSE/JSE Africa All Shares Index.

ArcelorMittal South Africa posted 470 million rand ($70 million) net income in the second quarter, a 54 percent decline from a year earlier, according to Bloomberg calculations based on the difference between first-half and first-quarter figures. Third-quarter earnings will be “substantially lower” because of a drop in international steel prices and sales volumes, the Vanderbijlpark-based company said.

“The results were just much worse than we expected,” Mohamed Kharva, an analyst at Nedgroup Securities, said by phone. “I think the market was caught by surprise by the cost pressures the business is under, and their outlook for the third quarter is extremely negative.”

ArcelorMittal, the world’s biggest steelmaker and the Luxembourg-based parent of ArcelorMittal South Africa, reported a 22 percent increase in quarterly profit, beating the average estimate of 14 analysts surveyed by Bloomberg. It forecast rising shipments in the second half.

“Things have just gone a bit pear-shaped in South Africa,” Kharva said. Domestic sales were flat and exports dropped 17 percent in the first six months, compared with a year earlier, the company said in a statement.

The cost of coking coal increased by 59 percent, iron ore by 23 percent and electricity by 28 percent in the six months, compared with a year earlier, ArcelorMittal South Africa said in the statement.

--Editors: Alex Devine, Tony Barrett

To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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