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10 May 12 Coke unit depends on chrome tax – ArcelorMittal

South Africa, the world’s biggest ferrochrome producer, is “depending very much” on the implementation of the proposed tax, Chief Executive Officer Nonkululeko Nyembezi-Heita said on a conference call today. Should the government decide against the duty, the steelmaker would “have to rethink this whole business” as it sells all its market coke locally, she said.

Local producers have asked for a tax of $100 per metric ton to limit exports to China, which is displacing local production. South Africa’s chrome-ore exports to China increased 51 percent to about 4.7 million metric tons last year, while local ferrochrome output declined 9 percent to 3.28 million tons, Merafe Resources (JSE:MRF) Ltd. said on March 6.

Revenue from the unit dropped 16 percent in the quarter through March as a number of producers shut furnaces following electricity buyback agreements with state utility Eskom Holdings SOC Ltd., the Vanderbijl Park-based steelmaker said in a statement today. Coke is a key ingredient used to produce ferrochrome from chrome ore.

Producers ‘Under Pressure’

“If the tax is not implemented, it will be really bad for the ferrochrome producers and will put them under pressure,” Mohamed Kharva, an analyst at Nedgroup securities Ltd., said by phone from Cape Town.

ArcelorMittal expects more guidance on the proposed tax by the third quarter of the year, Nyembezi-Heita said. The unit contributed 10 percent to its earnings before interest, tax, debt and amortization of 1.97 billion rand ($247 million) in the quarter through March.

The steelmaker said it expects “substantially lower” earnings in the quarter through June as domestic demand and prices retreat and costs increase.

Profit will be lower “due to a decline in domestic demand, softer steel prices, higher costs such as electricity and transport and a drop in sales of commercial coke due to the usual shutdown of the ferrochrome industry in the winter months,” it said.

The local unit said first-quarter profit rose 52 percent to 279 million rand, or 70 cents a share, from a year earlier. Sales climbed 18 percent to 9.1 billion rand as consumers restocked after production shutdowns led to shortages of steel in the second half of last year.

ArcelorMittal South Africa declined 0.2 percent to 55.44 rand by the 5 p.m. close in Johannesburg. The FTSE/JSE (JSE:JSE) Africa All Share Index (Alsi) increased 1.3 percent.

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