ArcelorMittal Is Latest Victim of China's Steel-Export Glutby
Full-year Ebitda forecast reduced to $5.2 billion-$5.4 billion
Third-quarter profit declines 29% from a year earlier
ArcelorMittal is taking the latest knock from record Chinese steel exports hurting producers across the globe.
The world’s biggest steelmaker on Friday cut its full-year profit target and suspended its dividend, putting the blame on the flood of cheap steel from China’s loss-making mills. The market is being overwhelmed with material coming from the nation’s state-owned and state-supported producers, a collection of industry associations said Thursday.
“It is obvious that we are operating in a very challenging market,” Chief Financial Officer Aditya Mittal said on a call with reporters. “This is essentially the result of very low export prices out of China that are impacting prices worldwide.”
The steel industry has been roiled by the slowest economic growth in two decades in China, the biggest consumer. The flood of cheap exports from the nation has drawn complaints from Europe and the U.S. that the shipments are unfair. Bloomberg Intelligence estimates Chinese steel shipments overseas will exceed 100 million metric tons this year, more than the combined output of Europe’s top four producing countries.
While demand for steel in the company’s largest markets of the U.S. and Europe is recovering, producers’ profits are being hit by slumping prices because China has been pushing excess supply onto the world market as its economy slows.
“This is not an economic crisis, it is not a volume crisis, it is an import crisis,” Mittal said. “Our core markets of Europe and Nafta are still growing,” he said, referring to North American Free Trade Agreement.
ArcelorMittal’s shares were little changed at 4.979 euros by 10:24 a.m. in Amsterdam. The Luxembourg-based company’s stock has dropped 45 percent this year and reached a 12-year low in October. The producer previously reduced its 2015 profit forecast in May.
Mittal said exports into the Nafta region from China rose 30 percent to 40 percent in the first half while those to Europe gained about 40 percent in the first nine months of the year. ArcelorMittal lowered its expectations for steel demand in China, forecasting that consumption would contract by 3.5 percent this year.
The company reduced its full-year Ebitda forecast to $5.2 billion to $5.4 billion from an earlier target of $6 billion to $7 billion. It reported a 29 percent drop in third-quarter profit. Scrapping the dividend will save about $360 million, the CFO said.
“Global steel prices continue to deteriorate,” said Seth Rosenfeld, an analyst at Jefferies International Ltd. in London. “The key to 2016 will be a potential reversal of painful market-wide trends that impacted 2015.”
Other steel producers have already been hit. Nippon Steel & Sumitomo Metal Corp. and JFE Holdings Inc., Japan’s two biggest, cut their profit forecasts last month. Germany’s Kloeckner & Co SE reported a 54 percent drop in third-quarter profit last week and India’s JSW Steel Ltd. warned last month that steel prices will remain under pressure from the global surplus.
Nine associations, including Eurofer and the American Iron and Steel Institute, on Thursday said there is almost 700 million tons of excess capacity around the world, with China contributing as much as 425 million tons.
“The pricing that is coming out of China is just not sustainable,” Mittal said. “The volume of losses that they are encountering is very significant. Their problem is being amplified and then exported on to our markets.”
ArcelorMittal’s third-quarter earnings before interest, taxes, depreciation and amortization declined to $1.35 billion from $1.9 billion a year earlier. That was in line with the average of 14 analyst estimates compiled by Bloomberg. The company posted a net loss of $711 million after writing down the value of its steel inventories.
Sales fell 22 percent from a year earlier to $15.6 billion. The company lowered its 2015 capital expenditure forecast to $2.8 billion from about $3 billion and said net debt would fall below $15.8 billion by year-end.