ArcelorMittal’s Surging Profit Underscores Steel Turnaround

Updated on
  • Steel prices recovered as Chinese stimulus boosted demand
  • Steel, iron ore and coal prices jumped at least 80% last year

ArcelorMittal’s biggest earnings jump in seven years and forecasts for better steel demand showed the recovery in commodities is gaining strength.

The shares added 6.5 percent to 8.01 euros in Amsterdam trading, extending a rally that has more than tripled the value of the world’s top steelmaker in the past year. Earnings before interest, taxes, depreciation and amortization jumped 20 percent, the most since 2010, bolstered by higher prices for steel and iron-ore.

The company has undergone a dramatic turnaround in the past year as steel prices jumped on the back of stronger economic growth in China and a broader commodities recovery. ArcelorMittal said its main financial goal is to pay down debt and return to an investment-grade credit rating, so the board decided against paying a dividend.

“We model significant further earnings gains” based on better steel demand and expanding margins, Seth Rosenfeld, an analyst at Jefferies in London, said by phone. “The Europe performance is very positive for the company. It’s the biggest earnings driver.”

Global steel consumption may rise as much as 1.5 percent in 2017, after a 1 percent increase last year, the company said.

European steel prices surged 82 percent last year, while benchmark rates for iron ore and coking coal, which ArcelorMittal also mines, also jumped.

Earnings before interest, taxes, depreciation and amortization rose to $6.26 billion last year, the Luxembourg-based company said in a statement. The figure beat the $6.14 billion average estimate from a survey of analysts. Ebitda in the fourth quarter was $1.66 billion, 51 percent higher than a year ago.

While the company stopped providing earnings guidance, the forecast for more steel consumption suggests profit will increase further, analysts from Goldman Sachs Group Inc. said.

Net debt decreased by $4.6 billion to $11.1 billion at year-end, the company said.

Aditya Mittal, the company’s chief financial officer, said it would benefit from more spending on U.S. infrastructure and policies that enforce fair trade.

“There needs to be a comprehensive solution to the Chinese overcapacity issue, as well as the subsidies that they grant to their steel industry,” he told reporters on a call. “That the U.S. enforces existing rules, and ensures there’s a level playing field, we’re very supportive of that.”

— With assistance by Jesse Riseborough

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