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SIMON BROWN: I’m chatting now with independent analyst Jimmy Moyaha. Jimmy, I appreciate the early morning time. When ArcelorMittal put out their mid-year results to June [2022] they warned that a lot could go wrong in the second half. I don’t think we expected, frankly, everything on their list to go wrong. From that trading update yesterday, by my numbers, they actually swung into a loss for the second half of the year after a fairly strong first half.
Listen: ArcelorMittal CEO Kobus Verster on interim earnings up 22%
JIMMY MOYAHA: Morning, Simon. As you said, we anticipated that things could go wrong, and that a couple of things could go wrong. But it does seem like absolutely everything went sideways, and that’s never a comfort thing. But they also outlined in their update that there were a couple of factors that were beyond their control. So the increase in import prices on the coal side, the fact that the demand for coal actually affected their ability to move steel via road and via trucks and all of that – that was quite a shocking thing. But it does make sense. The truck drivers and delivery drivers probably get more per tonne of coal than they do of steel, and they can sort of do more trips and that sort of thing.
JIMMY MOYAHA: But I think overall the consensus here is that they had anticipated that they would do fairly well – not as [much] as in the first half – but they didn’t anticipate it would be this bad. The market saw that. The market saw that the share price was down well over 10% at some point in trading yesterday. It closed down over, I think, 11.5% yesterday. So the market definitely responded to that, and that’s even before we had the official results. We know that there’s going to be a results presentation around February 9, with all the results coming out and everything.
But even before that the markets didn’t care too much about this decarbonisation roadmap that they alluded to. It was all about the performance, and the performance was less than impressive.
SIMON BROWN: To the point, literally everything that they flagged could happen, [did go] wrong. Does that make opportunity or is that really just for the very, very brave – which I am not?
JIMMY MOYAHA: Well, I think at this stage if you look at the commodities space, there are better opportunities on the commodities front, especially if you need to anticipate that there’s going to be a recovery in Chinese demand. There might be a flurry to safe havens if we see a recessionary environment come up and that sort of thing. I think on the steel side at the moment a lot of it is going to be dependent on other factors, as this update alludes to – the fact that coal prices might continue to rise. We might not see that come down. We might go through another super cycle of commodity prices being elevated and steel prices remaining low. So all that’s going to do is create a widening of that spread between their input costs and what they’re able to put out.
And if you’re still dealing with factors around Transnet not being able to move what you need them to move from an export and a delivery perspective and those sorts of factors, those factors aren’t going to go away overnight. So you’re probably better off at this stage just waiting it out, seeing what the results say, and seeing if the outlook on the steel side of things is actually going to really increase significantly.
Locally [in] the domestic economy we know that they’re not going to get infrastructure support and development from the government. That’s going to be another drag on whatever their plans are – if there are plans there in the construction space.
I think at the moment you’re probably going to get your returns a little higher up in markets like the oil side and the gold side. It’s probably worth having a look there.
SIMON BROWN: I take your point on that. I’m looking at the gold … chart and it is still sort of at those absolute record levels. So maybe leave it alone; there are better options out there.
Jimmy Moyaha, independent analyst, I always appreciate the early morning insight.
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