ArcelorMittal South Africa Warns Demand to Remain Weak

JOHANNESBURG--South Africa's largest steel producer, ArcelorMittal South Africa (ACL.JO), said Thursday that it swung to a profit in the third quarter but noted that earnings for the remainder of the year will be weaker due to poor demand.

ArcelorMittal South Africa said headline earnings--a common measure of profit in South Africa that strips out a number of one-time items--for the three months ended Sept. 30 totaled 199 million rand ($19 million), up from a loss of ZAR168 million posted a year earlier, when the company had to shut one of its plants due to weak demand.

The better performance was helped by a 3% year-on-year rise in steel sales to 1.13 million tons and by most plants operating around 80% of their production capacity.

ArcelorMittal said though that steel sales in South Africa will be lower in the final months of the year, as economic growth is forecast to come in at its weakest in four years.

The company has been plagued by an ongoing dispute for the past three years with the country's biggest iron ore producer, Kumba Iron Ore Ltd. (KIO.JO), over a pricing model for the key steelmaking ingredient.

Earlier in the week, the companies said they had settled on a new agreement, ending months of court proceedings and bringing stability to the two operations.

ArcelorMittal will now pay Kumba the cost of production plus a margin of 20% for up to 6.25 million tons a year of iron ore. The companies estimate that the cost of iron ore per ton under this agreement will average between $60 and $65/ton for 2014 and 2015. Under the agreement, ArcelorMittal will also transfer the cost of running the aging Thabazimbi mine to Kumba.

Write to Devon Maylie at [e-mail]

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