ArcelorMittal Sees 2013 Earnings Gain as Steel Sales Revive

ArcelorMittal, the world’s biggest steelmaker, said it expects an earnings recovery in 2013 after posting the lowest quarterly profit in three years as the European debt crisis eroded demand for the metal.

Earnings before interest, taxes, depreciation and amortization fell to $1.32 billion in the fourth quarter from $1.71 billion a year earlier, ArcelorMittal said today in a statement. That beat the $1.25 billion median estimate of 18 analysts surveyed by Bloomberg. The company said 2013 Ebitda will exceed last year’s $7.1 billion as it ships more steel.

“Although we expect the challenges to continue in 2013, largely due to the fragility of the European economy, we have recently seen some more positive indicators,” Lakshmi Mittal, chief executive officer of the Luxembourg-based company, said in the statement. These will “support an improvement in the profitability of our steel business this year.”

ArcelorMittal will report 2013 Ebitda of $8 billion, according to the mean estimate of 30 analysts. Aditya Mittal, chief financial officer, wouldn’t comment on those projections on a call with reporters.

Steel-industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices. European steelmakers are grappling with excess capacity that’s pushing down prices as operating costs climb. The region has capacity to make about 210 million metric tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.

Optimistic Signs

ArcelorMittal rose 1.1 percent to 12.56 euros at the close in Amsterdam.

“There is some cause for optimism, things are certainly moving in the right direction,” said Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin. “Short term, there is momentum for the mining business, but by the second quarter we need to see the steel price moving, it’s going to be tricky as demand isn’t really there at the moment.”

The European steel market will remain “stuck in reverse gear” for the time being, Eurofer said yesterday. “We do expect a more supportive economic environment towards the end of the year. But it will take most of 2013 before our customers in industry and the steel distribution chain will notice any improvement in business conditions.”

European steel demand will probably drop by 1 percent this year, compared with a 9 percent decline in 2012, Aditya Mittal said on the call.

“We are seeing improvements in terms of shipments in all markets compared to the fourth quarter,” he said. “The first quarter is stronger than the fourth quarter.”

Increased Output

ArcelorMittal produced 88.2 million tons of steel in 2012. Output will increase by 2 percent to 3 percent this year, while global steel use will climb by 3 percent, the company said. Marketable iron ore shipments are expected to increase by about 20 percent, the company said.

Iron ore prices gained 39 percent in the fourth quarter and reached $158.50 a ton in January, the highest since 2011. European hot-rolled coil, a benchmark steel product, fell to the lowest in more than two years in the fourth quarter.

The producer reported a full-year net loss of $3.7 billion after taking a $4.3 billion non-cash impairment on its European businesses as the region’s weakening economy eroded demand. Sales slipped 10 percent to $84.2 billion.

ArcelorMittal’s net debt fell by $1.4 billion to $21.8 billion by the end of the fourth quarter. The company is seeking to reduce borrowings after its credit rating was cut to junk by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. The steelmaker said Jan. 9 it would raise about $3.5 billion in a sale of shares and bonds to lower debt.

South Africa

The company has scaled back its dividend and sold assets, including a $1.1 billion stake in its Canadian mining business. It’s also moving output to cheaper sites to pare debt to $17 billion by the end of June.

ArcelorMittal South Africa Ltd. also reported results today. Africa’s biggest steelmaker forecast it would “break even” in the first quarter as steel prices and domestic demand increase. The company posted a 462 million-rand ($52.3 million) loss in the fourth quarter.

ArcelorMittal South Africa dropped 0.6 percent in Johannesburg to 36.45 rand.