ArcelorMittal, South Africa’s largest steelmaker, saw its shares plummet by 43% on Tuesday. This unexpected drop wiped out roughly R1.7 billion in shareholder value. This significant drop was attributed to the company’s underestimation of the economic downturn caused by unprecedented load shedding, which had a severe impact on its customers.
ArcelorMittal revealed in a trading update that it expected headline earnings per share to fall by up to 117% for the fiscal year ending in June. This equated to a potential loss of approximately R515 million for the company, whose current market value on the JSE is approximately R2.3 billion.
The group admitted that it had underestimated the negative market effects of electricity load shedding, making it difficult to adjust production in a timely and responsible manner. Maintaining operational efficiency in such difficult circumstances became especially difficult, impeding the company’s ability to maintain a continuous, integrated steel-making process in a cost-effective manner.
ArcelorMittal, which has been a major contributor to South Africa’s crude steel production since its inception in 1928, previously reported an R2.3 billion loss in earnings for the fiscal year ending in December. However, the company expressed confidence that things were improving. Unsustainable price pressures and positive movements in international steel prices in early 2023 were cited as reasons for optimism. Unfortunately, these tailwinds did not benefit the local trading environment. Consumer confidence was further eroded by factors such as high inflation, load shedding, rising interest rates, and contractions in key steel-consuming industries such as manufacturing, autos, mining, and construction.
The company also had difficulty releasing working capital, resulting in high levels of net borrowings. Despite efforts to improve the net borrowing position in response to the region’s challenging steel trading environment, the company faced significant challenges.
ArcelorMittal announced the resignation of its CFO, Siphamandla Mthethwa, after only two weeks in the position, citing personal reasons. This exacerbated the turmoil within the company.
The consequences of these setbacks were visible in the sharp drop in ArcelorMittal SA’s shares, which fell by nearly 43% to levels last seen in early 2021. The company’s shares have dropped by more than half year to date, reflecting the difficult conditions it has faced in 2023.
In summary, ArcelorMittal, South Africa’s leading steelmaker, saw its shareholder value plummet as a result of its underestimation of the economic impact of load shedding. The company encountered difficulties in adjusting production and maintaining operational efficiency, resulting in a projected loss for the year. Inflation, load shedding, rising interest rates, and contractions in key steel-consuming sectors all hampered the local trading environment. Efforts to improve the company’s financial position were complicated further by issues with releasing working capital. These setbacks were exacerbated by the resignation of the CFO. As a result, ArcelorMittal’s stock plummeted, highlighting the significant challenges it faces in 2023.
