Merrill Lynch queries Mittal's capacity in South Africa
Ivestment house Merrill Lynch has expressed concern over Mittal Steel SA's ability to capitalise on expected infrastructure growth as the group continues to struggle with production constraints. In a recent research report, Merrill Lynch said that while local sales remained strong, it was cautious about Mittal SA's ability to capture increased demand, especially as capacity utilisation at Mittal SA remained high.
The report noted that Mittal was not able to meet the demand increase due to continued production issues. Releasing third-quarter results recently, Mittal admitted that the unprecedented surge in local demand for steel had caught the steel producer off guard. The increase in demand pushed up Mittal's supply of steel to the local market to almost 75% of production.
But while this had contributed to increasing third-quarter earnings by almost half, to R1,5bn, the group also admitted to having to look into importing steel as local demand exceeded supply. External factors aggravated the situation, with Mittal reporting a 5% reduction in liquid steel production in the quarter, compared with the previous quarter.
Merrill Lynch also cautioned that earnings momentum could slow, putting pressure on Mittal's share price, as global steel prices continued to soften.