Sluggish demand to affect SA's largest steelmakers in Q3

According to Chifipa Mhango, ArcelorMittal SA's chief economist, sales of domestic steel products, both flat and long, started to reflect declining production in the mining, manufacturing and construction sectors in the first two quarters of this year.

Even though AMSA and Highveld will only report on their September quarter performance in the next few weeks, expectations have already been dampened. Early in August, a structural failure at AMSA's Newcastle plant cost about R1.1 billion, on which AMSA will file an insurance claim. According to Evraz Highveld CEO Michael Garcia, the group had experienced strikes and maintenance shutdowns in August, these, he said, would reduce the third quarter's output.

Nedbank Securities analyst Mohamed Kharva says the outlook for steel demand in SA over the next three to five years is quite poor. Local steel companies did well between about 2003 and 2008 on a combination of factors, including a strong global economy and deadlines for completing projects ahead of the 2010 soccer World Cup in SA, Kharva said, but he doubts local demand will return to those levels.

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