Amsa’s turnaround is coming along well and it is long overdue, says an analyst. Picture: SUPPLIED
Amsa’s turnaround is coming along well and it is long overdue, says an analyst. Picture: SUPPLIED

Steelmaker ArcelorMittal SA’s (Amsa’s) share price surged by up to 22% in early trade on Tuesday as investors appeared to be buying into the company’s efforts to return to profitability.

Since the beginning of August the share price has gained more than 60%. The uptick in the share comes after the group last week reported its first interim profit in six years in the six months to June, largely due to strong global demand, higher international steel prices, reduced costs and a weaker rand-dollar exchange rate during the latter part of the six months.

The company’s return to profitability and its improved outlook, despite dim prospects in the domestic market due to subdued economic growth, have caught the eye of investors who are banking on the company’s growth prospects, Stephen Meintjes, head of research at Momentum Securities, said.

"We are seeing early-bird investors who entertain hopes of a change in the company’s … prospects," Meintjes said.

Amsa said last week it was taking steps to improve profitability and generate positive cash flows. These included cost-saving interventions, assessing the profitability of various product lines and considering potential structural changes.

Cheslyn Francis, an analyst at Afrifocus Securities, said on Tuesday there was a major push within the company to improve its fortunes.

A combination of an improvement in net debt relative to equity and buoyant international markets in the second half of the current financial year would augur well for Amsa’s turnaround, Francis said.

"Amsa’s turnaround is coming along well and it is long overdue. Strong international steel demand and higher international prices are what will carry the company in the second half of the financial year.

"The local market is still subdued," he said.

The group said last week it expected domestic steel demand and exports to remain stable in the second half of the financial year. The local steel sector has come under pressure from different fronts recently. These include weak local demand due to lack of infrastructure investment, and rising, cheaper imports that hurt local producers. In the six months to end-June imports, however, fell 31% to 177,000 tons.

"There will not be a pick-up in infrastructure investment in a low-growth environment. Local and regional investment has not been forthcoming," Francis said.

According to Stats SA, seasonally adjusted manufacturing production decreased 0.1% in the second quarter compared with the first quarter, with seven of the 10 manufacturing divisions reporting negative growth rates over this period.

Amsa shares closed 3.41% stronger at R5.15 a share.

njobenis@businesslive.co.za

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