Listed iron and steel producing giant ArcelorMittal SA reported a 31 percent improvement in headline earnings of R2-billion on Wednesday in its unaudited group earnings for the quarter ended 31 March 2008.

This was in comparison to both the previous quarter and the corresponding period last year.

Headline earnings increased mainly due to the depreciating currency compared to a loss during the previous quarter and a small gain during the corresponding quarter last year.

Higher equity accounted for earnings from the company's marketing and shipping joint venture as well as an improvement in operating income.

Nonkululeko Nyembezi-Heita, the group's chief executive officer, said: "Steel demand from South African steel consuming sectors is exceeding supply notwithstanding higher interest rates and electricity constraints.

"We continue to see strong demand from the manufacturing and building and construction industries".

Local sales for the quarter increased by 14 percent compared to the previous quarter and 1 percent compared to the corresponding period last year and now represent 85 percent of total sales compared to 73 percent last quarter and 79 percent during the same period last year, the steel giant said.

Exports declined by 47 percent compared to the previous quarter and by 35 percent compared to the corresponding period last year - due to higher domestic sales and lower production volumes.

Revenue for the quarter increased 11 percent compared to the corresponding period last year and 12 percent compared to the previous quarter to R8-billion.

Operating income increased by 26 percent compared to the previous quarter and five percent compared to the same period last year to R2-billion.

"The weaker average rand/US dollar exchange rate and a substantial increase in the prices of market coke sales by the Coke and Chemicals business were some of the highlights of our improved operating performance. However, this was partially offset by lower steel sales and a significant increase in costs mainly due to higher input material prices," ArcelorMittal said.

International steel prices were expected to increase further during the next quarter underpinned by high demand, supply constraints and continued cost pressures.

"In South Africa, although spending on durable goods is expected to decline as a result of high interest and inflation rates, demand is expected to remain strong primarily due to high fixed investment spending on capital projects aimed at improving the country's infrastructure," the company said.

It therefore expected the results for the second quarter "to show a significant improvement from quarter one, driven by higher sales prices, despite further increases in the cost of raw materials, mainly coal and scrap."

Sapa