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ArcelorMittal Reports 12% Increase in Profit

Photographer: Martin Divisek/Bloomberg

A worker operates in the blast furnace at ArcelorMittal's steel plant in Ostrava, Czech Republic. Close

A worker operates in the blast furnace at ArcelorMittal's steel plant in Ostrava, Czech Republic.

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Photographer: Martin Divisek/Bloomberg

A worker operates in the blast furnace at ArcelorMittal's steel plant in Ostrava, Czech Republic.

ArcelorMittal (MT), the world’s biggest steelmaker, said European demand is growing faster than it expected, countering a slump in Russia and Ukraine.

Demand in its largest market may expand as much as 3 percent this year, ArcelorMittal said today after giving first-quarter results, up from 2.5 percent predicted in February. Its forecast for the Commonwealth of Independent States was reversed to contraction of as much as 2 percent from growth of as much as 2.5 percent, because of the crisis over Ukraine.

“The changes overall to our business are positive because our core markets are the U.S. and Europe,” Chief Financial Officer Aditya Mittal said on a call with reporter. “We’re not directly exposed to the Chinese market. We are exposed to the CIS markets, but not to the same level as Europe.”

ArcelorMittal is among the biggest foreign investors in Ukraine, having bought mills and mines from the government for about $4.8 billion in 2005. It relocated some foreign workers in February and dismantled a monument to Vladimir Lenin outside a Kryvyi Rih steel plant in central Ukraine after protesters destroyed statues of the Soviet Union founder.

The U.S. and the European Union have accused Russia of fomenting unrest in Ukraine’s easternmost regions after annexing the Crimean peninsula in March amid the worst standoff since the fall of the Iron Curtain. Russian steel use is set to stagnate this year because of the crisis, Mittal said.

Ukraine Exports

“Our operations in Ukraine are stable,” he said. “What we are seeing is a weaker domestic market and as a result we’ve increased exports out of Ukraine.”

The shares dropped 3.4 percent to 11.5 euros by the close in Amsterdam. The STOXX Europe 600 Index fell 1 percent.

ArcelorMittal, which shut plants and fired workers after waning demand and excess capacity eroded margins, forecast in February profit would rise 16 percent this year as demand rebounds in the U.S. and Europe. The Luxembourg-based company lowered its estimate for global steel use growth to 3 percent to 3.5 percent from a February forecast of 3.5 percent to 4 percent, saying demand in China will expand at a slower pace than expected as the real estate market cools.

“The recovery in the European economy is spurring demand for steel, outpacing China where demand is flat,” said Sarah Wang, a Shanghai-based analyst with Masterlink Securities Corp. “ArcelorMittal, as a dominant producer in Europe, is benefiting from the growth and a production discipline.”

Falling Ore

ArcelorMittal, which owns iron-ore mines, maintained its assumption the steelmaking ingredient’s price would average $120 a ton this year. The price of iron ore is a threat to the company’s full-year $8 billion target for earnings before interest, taxes, depreciation and amortization, Bank of America Corp. said in a note to investors today.

Ore with 62 percent content delivered to the Chinese port of Tianjin has fallen 23 percent this year and traded at $103.70 a ton today, the lowest since September 2012. ArcelorMittal sees “some potential recovery” in the price, Mittal said.

ArcelorMittal today reiterated its full-year guidance for earnings before interest, taxes, depreciation and amortization. The first-quarter net loss narrowed to $205 million from $345 million a year earlier.

Ebitda rose 12 percent from a year earlier to $1.75 billion, beating the $1.7 billion average estimate of 14 analysts surveyed by Bloomberg. Sales rose 0.2 percent to $19.8 billion.

Nippon Steel

Nearest rival Nippon Steel & Sumitomo Metal Corp.’s fourth-quarter profit surged 82 percent to 50 billion yen ($492 million), according to Bloomberg calculations based on 12-month results released today by the company. Sales totaled 1.479 trillion yen.

ArcelorMittal, which sold 21 million tons of steel in the first quarter, maintained its forecast for shipments to rise 3 percent and iron-ore sales 15 percent this year. The company said it expects a “moderate improvement” in steel margins.

The steelmaker has cut $4.8 billion in costs since 2008 and targets a further $3 billion in savings by 2015. It has reduced its workforce by more than 80,000 and closed plants in Belgium and France.

Net debt rose to $18.5 billion in the quarter, according to the statement. ArcelorMittal is trying to reduce its borrowings to about $15 billion after its credit rating was cut to below investment grade by Moody’s Investors Service, Standard & Poor’s Corp. and Fitch Ratings. Net debt has peaked for the year, Mittal said.

Its South African unit today reported a first-quarter operating profit of 323 million rand ($31 million), compared with a 270 million rand loss a year earlier. Sales rose 18 percent to 9.16 billion rand.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Tony Barrett

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