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ArcelorMittal Czech Plant Buys Time With $53 Million Investment

Oct. 8 (Bloomberg) -- ArcelorMittal Ostrava, the Czech unit of the world’s biggest steelmaker, said operations are stabilized for at least two years after a $53 million investment to modernize the plant.

While the investment allows the unit to produce higher-quality steel and increase exports to markets such as Saudi Arabia, its long-term prospects remain uncertain as prices and demand for construction steel in Europe remain low, board member Jan Rafaj said in an interview today.

“The investment should stabilize the plant for two to three years, but it’s not a long-term solution,” Rafaj said at an industry fair in Brno, Czech Republic. “ArcelorMittal made it clear that it cares about the Ostrava plant, but only in the timeframe of months rather than years.”

ArcelorMittal has already closed plants in western Europe at Liege in Belgium and Florange in France and has said it’s considering shuttering plants in eastern Europe as it battles falling demand in its biggest market. The steelmaker has said any closings in eastern Europe will take place over a few years as the region is still a growth market and the company is waiting to see how demand evolves.

Steel-industry earnings have slumped as steelmakers grapple with spare capacity and Europe’s economic crisis saps consumption of the metal. ArcelorMittal cut its full-year profit forecast in August saying demand in the U.S. and Europe is weaker than previously expected.

“There is overcapacity of steelmakers in Europe,” Rafaj said. “Optimization will affect our region, too.”

Shares Decline

European Union steel use declined 5.7 percent in the first half of the year, according to ArcelorMittal. European steel-industry shares have tumbled 8 percent in 2013, the second-worst among 37 industry groups tracked by Bloomberg.

The European market remains very difficult with “extremely low visibility,” Rafaj said. While there are small signs of improvement in demand from clients such as construction companies, it’s far from clear whether the trend is sustainable, he said.

ArcelorMittal Ostrava sells up to 45 percent of its production in the Czech Republic and exports the rest to Germany, Poland and Slovakia. The company is also seeking further opportunities in Asia and the Arab peninsula, according to the executive.

The planned closing of New World Resources Plc’s Paskov coal mine next year will force the steelmaker to look for alternative coal suppliers in neighboring Poland, he said.

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net

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

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