Salient features

·         Revenue decreased by 24% to R6.17 billion compared with Q4 2008

·         Headline loss of R237 million

·         Production levels up to 60% of capacity

·         Liquid steel production up 38% compared with Q4 2008

·         Marginal results improvement expected for Q2 2009

ArcelorMittal South Africa today reported a headline loss of R237 million for the first quarter of 2009, down from a R1.06 billion profit for the fourth quarter last year, as a result of a sharp decline in demand and prices of steel and the persistence of high contract prices for raw material inputs, particularly coking coal.

As expected, worsening economic conditions had a substantial negative impact on sales and income . Revenue for the quarter decreased by 24% to R6.17 billion compared to the previous quarter. At the operating level the loss was R145 million from a profit of R1.61 billion in the fourth quarter of 2008.

The decline in earnings was further aggravated by lower income from the Coke & Chemicals business amid a slump in demand for market coke from the ferro-alloy industry. The company also made losses on foreign currency transactions as the Rand strengthened against the US dollar during the first quarter of this year.

Commenting on the results, ArcelorMittal South AfricaCEO Nonkululeko Nyembezi-Heita said: “As anticipated, our performance was lower for the quarter due to the global financial and economic crisis. Several factors contributed to the weaker results including; the sharp decline in steel prices; continued weak demand; and the slower than expected pace of de-stocking by steel merchants. The outlook for global steel production has not improved significantly and it now appears that the second quarter will be extremely challenging.

“In the light of the deepening crisis, we have proactively and prudently implemented additional cost savings measures in the first quarter. Given that prices have continued to decline in April we are looking at further actions to reduce the cost of production.”

Market Review

The global steel industry has been particularly hard hit by the severe downturn of the world economy. Steel export prices are falling below the operating cost level of many steel mills and, in some cases, even below their marginal costs. Latest Worldsteel figures show that steel ouput declined by 24% in the first quarter of this year compared with the first quarter of 2008.

In view of the downbeat performance of the global steel industry, the company’s domestic steel sales for the quarter were resilient at 686 000 tonnes, 4% down on the previous quarter, but still 43% lower than the corresponding period last year. This was mainly due to a 22% quarter-on-quarter decline in manufacturing activities, the negative impact of tight credit conditions on demand, especially from the building and construction industry, and higher inventory levels in the downstream industry. On a positive note, the public sector’s infrastructure programme continues to underpin domestic demand, with steel sales to Eskom’s new power stations starting to take off.

Operations

The results indicate an underlying resilience in ArcelorMittal South Africa’s performance. Despite the tremendous economic challenges, the companyraised liquid steel production for the first quarter of this year by 38% compared to the fourth quarter, although this is still 26% lower than output in the first quarter of 2008. Production levels fell from around 80% of capacity in the first quarter last year to a low of below 50% in the fourth quarter as the company aligned the supply of steel to reduced demand levels. Production has picked up to levels of around 60% of capacity in the first quarter of this year as the loss in sales on the domestic market was shifted to export orders. Export sales comprised a third of total sales in the quarter compared with 22% in the fourth quarter. Sales to the rest of Africa dominated the export order book.

The company is focused on continuing to match production output with demand for steel products.

Outlook

Looking ahead Nyembezi-Heitasaid: “Results for the second quarter are expected to improve marginally as coking coal input prices are set to come down during the quarter, when the current contracts expire. While steel prices are expected to remain weak, domestic sales volumes should increase slightly during the second quarter as the de-stocking process nears its end. 

“A decline in inflation, further likely interest rate cuts and Government’s commitment to continue with its infrastructure programme, should also improve consumer and investment spending as the year progresses. ”

Share buy-back

The company is proposing to return about R4 billion to shareholders via a share buy-back of about 10% of issued ArcelorMittal South Africa shares. The shares will be bought at a price of R87.64 a share, which is based on the 5-day volume weighted average traded price at close of business on April 20, 2009.

“We currently have excess free cash of more than R5 billion above our operational requirements and, given current share price levels, a buy-back is an appropriate mechanism to return excess equity to shareholders,” Nyembezi-Heita explained.

Details of the scheme will be released on SENS on or about May 5, 2009.

-Ends-

For further details contact :

ArcelorMittal South Africa www.arcelormittal.com/southafrica

Sven Lünsche    083 260 9279

Sven.Lunsche@arcelormittal.com

Issued by:

Brunswick South Africa on behalf of ArcelorMittal South Africa

Tel: + 27 (0)11 502 7300

Fax: + 27 (0)11 268 5747

Itumeleng Mahabane                  Tel: +27 (0) 83 253 0478

Taryn Wulfsohn              Tel: +27 (0) 83 273 1301