ArcelorMittal Rises as Profit Withstands Crisis: Amsterdam Mover

ArcelorMittal Profit Slumps 28% as Steel Demand, Prices Fall
Steelmakers are posting lower earnings as the European economic crisis erodes demand for steel and commodity prices weaken as Chinese growth slows. Photographer: Vincent Mundy/Bloomberg

ArcelorMittal, the world’s biggest steelmaker, rose in Amsterdam trading after indicating its full-year earnings would meet analyst expectations even as the European crisis saps demand.

ArcelorMittal advanced as much as 3.6 percent before closing 0.9 percent higher at 11.84 euros. Second-half earnings before interest, tax, depreciation and amortization per ton of steel would be similar to the first, the Luxembourg-based company said today. It reported Ebitda of $4.4 billion in the six months ended June, higher than the $4.2 billion median estimate of seven analysts compiled by Bloomberg.

“There is relief that a disaster has been averted,” said Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin. “But before people get too excited we need to get some visibility on steel prices. The tone is a little more positive then we might have thought.”

Steelmakers are posting lower earnings as the European economic crisis erodes demand for steel and commodity prices weaken as Chinese growth slows. Posco, Asia’s third-biggest steelmaker, yesterday reported a 44 percent decline in profit and cut its sales targets for the second time as demand fell.

ArcelorMittal’s comments on the outlook for the rest of the year suggest second-half Ebitda of $3.6 billion to $3.8 billion, according to a range of estimates from Nomura Holdings Inc. and J&E Davy Holdings Ltd. The median analyst estimate is for full-year Ebitda of $8.2 billion.

‘Very Challenging’

The steelmaker today reported a 28 percent slump in second-quarter profit. Ebitda of $2.4 billion included $300 million from disposals and compared with $3.4 billion a year earlier. The median analyst estimate was $2.1 billion.

“Market conditions in the first half have been very challenging, indeed more challenging than we had expected,” said Lakshmi Mittal, chief executive officer of the Luxembourg-based company. “Although the global economy remains fragile, we expect operating conditions to remain broadly similar in the second half.”

“With sentiment on the sector at lows we think an in-line set of numbers should be taken positively,” Bank of America Merrill Lynch said.

Second-half Ebitda per metric ton will be similar to the first half, said ArcelorMittal, which reported a figure of $101 a ton for the six months ended June.

Seasonal Pattern

“However, shipments will clearly be lower as the second half is impacted by the seasonal demand pattern,” Chief Financial Officer Aditya Mittal told reporters today. “All indicators” suggested that the decline in second-half shipments will be similar to the historical rate of 5 percent to 6 percent, he said.

Second-quarter steel shipments slipped 2.5 percent to 21.7 million tons from the previous three months. First-half volumes reached 43.9 million tons.

Net debt declined $1.6 billion to $22 billion in the quarter, surpassing the steelmaker’s target of a lowering to $22.5 billion. The company said that a further reduction in the second half is dependent on additional divestments.

The steel producer said it expected to complete further disposals in the coming quarters as it seeks to cut debt. ArcelorMittal today announced the sale of it 48 percent stake in Paul Wurth Group to SMS GmbH for 300 million euros ($362 million.)

Prices for hot-rolled steel coil, a benchmark product used in vehicles and buildings, averaged about $690 a ton in the second quarter, down from $809 a ton a year earlier, according to Steel Business Briefing’s global price index. Prices for iron ore, used to make the metal, slid 21 percent in a year.

Global Outlook

Global steel demand growth is forecast to slow to 3.6 percent this year from 5.6 percent in 2011, while in Europe there may be a 1.2 percent contraction, according to the World Steel Association.

“Europe remains our biggest concern and the severity of the situation is reflected in the performance of our European operations,” Mittal said in the statement. “Our focus throughout the remainder of the year remains on further improving competitiveness and reducing debt.”

The Bloomberg Europe 500 Steel Index fell 48 percent in the past year, the second-worst performance of 37 industry groups.

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