Financial Gazette (Harare)
Munyaradzi Mugowo
13 November 2009
Harare — ASTRA Industries Limited, a multi-industry company that operates a steel subsidiary, says there is "very little" scope for steel manufacturing recovery until mining and construction -- key clients for the industry -- start picking up again.
During the full year ended August 31, Astra reported a 55 percent decline in steel sales as mining and construction activity remained "subdued" through the first half of the financial year as a result of falling commodity demand and suspended projects.
The construction industry has declined precipitously in the last 10 years, and until this year, there had not been any new project approval since 2003.
Hyperinflation in the last two years also triggered drastic cost overruns that either held up projects under construction or increased suspensions or cancellations of new projects.
"The gradual recovery of key sectors such as mining and expected construction projects, set to commence during the coming year, should see the business returning to profitability," Astra said in the brief commentary accompanying its abridged financial report.
Murray & Roberts Zimbabwe, the country's largest construction and mining contractor, estimates the value of pipeline construction projects in the country at about US$15 billion, but predicts a steep slowdown in construction activity until the roll-out begins.
The contractor says for now, projects will mostly be limited to refurbishments and related repairs, which limits the procurement of steel and other construction materials.
The government, which owns a majority of the projects, is currently broke and literally bereft of implementation capacity.
Mining companies have also reported that major mine expansion projects remain suspended until global mineral commodity markets recover and power supply increases exponentially to support the growth.
The sector comes second after construction in terms of absorbing steel products. The bulk of steel is used to manufacture mining equipment.
With the outlook for the steel business still bleak, Astra hopes to ride on the crest of its fast-recovering chemicals division into the future.
During the review period, the group posted an after-tax profit of US$33 441 or US$0,03 earnings per share with no comparative for the previous year.
Revenue reached US$9 920 911, with the bulk of it coming in the second half of its financial year, which started a month after the introduction of the multi-currency system.
Performance was mainly driven by the group's chemicals division where demand for various chemical products surged 38 percent as its industrial customers either reopened or increased output.
As a result, aggregate volumes at the company's chemicals subsidiaries -- Chemicals Enterprises and NCP Distillers (Private) Limited, a unit it jointly owns with Hippo Valley Estates -- increased 37 percent. Volumes at N.C.P. Distillers alone jumped 50 percent from a decline of 60 percent last year. Astra's paints operation also made a significant comeback with sales increasing five percent, particularly at the retail end of the business.
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