- ArcelorMittal at its peak vied with Apple for market valuation
- Supplier to One WTC worth same as maker of Legoland version
ArcelorMittal may still be the world’s biggest steelmaker but for investors it’s a shadow of its former self.
After losing about $100 billion of market value, the supplier of steel for New York’s One World Trade Center and London’s Wembley stadium is worth the same as the operator of Legoland theme parks that make replicas of the iconic buildings.
For that, blame China. Demand from the biggest steel consumer is set to fall this year and beyond as the government shifts the economy away from manufacturing. That’s led local mills to export excess steel cheaply, collapsing world prices and industry profit margins.
It’s a far cry from ArcelorMittal’s heyday at the height of a boom in commodity prices in 2008, when the company briefly vied with Apple Inc. for market capitalization. Almost 95 percent of its peak value of 90 billion euros, or about $140 billion at the time, has gone. Among the hundreds of companies in the benchmark Stoxx Europe 600 Index of European equities through that period, only struggling miner Anglo American Plc has lost more.
Yet the steelmaker in many ways remains a giant. Sales in 2014 totaled about $80 billion, in the ranks of world-leading companies including Vodafone Group Plc and Unilever Plc.
ArcelorMittal still employs 222,000 people operating 58 blast furnaces, 40 electric arc furnaces and 15 mines across four continents. Production of 93 million metric tons of steel in 2014 was greater than the output of either the U.S. or India. If ArcelorMittal was a country, it would be the third-largest steelmaker, trailing China and Japan.
It just isn’t big enough to cope with the flood of Chinese steel now hitting the market.
“Chinese exports have significantly weighed on the global steelmakers, taking market share from the likes of Mittal,” said Seth Rosenfeld, an analyst at Jefferies International Ltd. in London. China would need to shutter about 230 million tons of capacity, equivalent to double ArcelorMittal’s, to eradicate oversupply in the country, according to Rosenfeld.
“In the absence of effective restructuring in China, dominant global steelmakers like Mittal are under pressure to shutter more capacity,” he said.
Exports from China rose by a fifth to a record 112 million tons last year. European hot-rolled coil, a benchmark for steel prices, sank in November to its lowest since at least 2007, down 75 percent from its peak. U.S. prices slid 40 percent in 2015 to a decade low.
Given market conditions, ArcelorMittal is likely “bleeding cash” and can’t afford to delay further action, including adjusting output, Barclays Plc analysts said in a note Friday.
The steelmaker already lowered annual production by about a fifth since 2007, equivalent to U.S. Steel Corp.’s entire output last year. ArcelorMittal has cut its 2016 cash needs by $1 billion and identified $1 billion of structural improvements, a spokesman said Tuesday.
“We would avoid steel exposure at all costs,” Macquarie Group Ltd. said in a note to investors on Tuesday. “The global steel industry is in a world of pain. Unfortunately, the situation is simply so bad, an overnight cure is nigh on impossible.”