BUSINESS DAY, Companies & Markets 07 Feb 2013, p. 11 Weak demand knocks ArcelorMittal SA Group posts wider loss, affected by economy, global price pressures MARK ALLIX Industrial Correspondent ARCELORMITTAL SA STILL REELING ARCELORMITTAL SA yesterday reported a headline loss of R518m ARCELORMITTAL SA . Headline loss of for the year ended December, Share price, daily close (cents) R518m citing depressed economic condi- 4800 tions and weak steel demand, Close: 3645 which were made worse by deadly 4400 . Depressed economic labour unrest. conditions and weak SA's largest steel maker said 4000 this compared with a loss of R52m steel demand in the previous year. It also said 3600 the poor result highlighted SA's . Worsened by deadly dependence on Europe as an 3200 labour unrest export market for downstream metal products. 0.63% 2800 "ArcelorMittal SA's results ghlights SA's reflect the difficult environment 2400 dependence on Europe that the company is currently S 0 N D F facing," Kagiso Asset Manage- 13 as an export market ment equity analyst Ross Heyns NONKULULEKO NYEMBEZI-HEITA said yesterday. Picture: MARTIN RHODES Graphic: SHAUN UTHUM Source: I-NET BRIDGE Mr Heyns said the internation nal steel price was under pressure ARCELORMITTAL SA 27% plunge in commercial coke building and construction sector, because of excess global capacity, Full year 2012 2011 sales. The drop in coke sales was the largest consumer of steel, con- and the South African unit of the Revenue (Rbn) 32.3 31.4 because of the shutdown of fur- tinued to be sluggish. The firm world's biggest steel maker also Pretax (Rm) (692) 126 naces by ferrochrome producers said that on a compounded basis, faced "additional domestic and Net Profit (Rbn) (508) 8 participating in Eskom's electric- steel demand in the country had company-specific issues". Diluted HEPS (c) (129) (13) ity buyback programme. These only grown at an annual average 'The company has experi- producers accounted for about rate of 1.1% over 20 years. enced significant cost pressure Dividend (c) 90% of such sales. Rand prices of key raw over the past few years, electricity result of weak demand and de- "As anticipated, 2012 was a materials such as coking coal, continues to increase and the stocking in the second half of the very tough year," ArcelorMittal pellets and scrap were down, Sishen (iron-ore) cost plus supply year, even as net realised prices in SA CEO Nonkululeko Nyembezi- while electricity costs rose 16%. agreement is in dispute," he said. rand terms rose by 7%. Heita, said yesterday. On a brighter note, the com- Domestic demand was important, Earnings before interest, tax, "At the same time, we are pany said it realised a net cash because ArcelorMittal SA depreciation and amortisation fell pleased with the strides we have inflow of R445m for the year, received a "significantly higher 35% to R1.12bn from R1.72bn in made in achieving operational sta- bringing its closing cash position price" for its domestic steel sales 2011. bility and containing costs," she to R884m, up from R439m in the than for exports, Mr Heyns said. This was due to a "modest said. previous year. Domestic sales fell 5% as a drop" in domestic steel sales and a Demand from the domestic allixm@bdfm.co.zaQuestion 1 You are manager of a rm with the following short-run production inction: . Fixed costs are R160 000, the wage rate is R10. a) Graphically illustrate and explain the marginal cost, average variable cost and average total cost curves of your rm, given the information above. (10) b) Based on your answer in a), graphically illustrate and explain the supply curve of the rm. (10) c) Suppose the rm faces the following demand curve: , graphically illustrate and explain the market equilibrium faced by the rm. (10) (1) At what point would you set the production target and price for the rm? Graphically illustrate how far, in terms of price and output, would the rm deviate from economic efciency. (10) e) Suppose you intend to increase your revenue. Would you cut prices, given the information above? (10) Question 2 Read the article: \"Weak demand knocks Arcelor-Mittal SA\" and answer the following questions. a) Graphically illustrate and carefully explain the impact of deadly labour unrest on the market for steel. (10) b) Graphically illustrate and briey explain the impact of Eskom's electricity buy-back programme on the market for commercial coke. (10) c) Graphically illustrate and explain the impact of Eskom's electricity buy-back programme on the performance of ArcelorMittal. (10) d) Government is proposing to set up another rm to compete with Arcelor-Mittal. Show why this proposal may not be viable under the circumstances mentioned in the article. (10) e) Government ofcials say that the pricing of steel is no longer as big an issue now, the biggest constraint on growth is \"erratic\" electricity supply. Graphically illustrate and explain how an increase in steel prices can lead to an increase in electricity prices. (10) l