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ArcelorMittal sees modest Q3 upturn, shares drop

ArcelorMittal sees modest Q3 upturn, shares drop
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First Published: Wed, Jul 29 2009. 01 41 PM IST
Updated: Wed, Jul 29 2009. 01 41 PM IST
Brussels: ArcelorMittal, the world’s largest steelmaker, forecast only a gradual second-half pick-up after weak demand and prices, inventory writedowns and job cut costs produced a third successive quarterly loss.
Chief financial officer Aditya Mittal said on Wednesday the company had seen initial signs of recovery, with destocking drawing to a close and price rises in various markets.
“We are expecting the first half will be the bottom of the cycle. In the second half we should be see gradual demand growth and price increases — clearly from very low levels though,” he told a conference call.
“The fourth quarter should see further improvement but a full recovery will be slow and progressive.”
Overall, the CFO said he expected global demand for steel to fall by 10% this year, but that demand in China was currently running 10% higher than last year.
For the third quarter, the company said its much-watched core profit (earnings before interest, tax, depreciation and amortisation or EBITDA) would be $1.4 billion to $1.8 billion.
The mid-point of that range would be an 81% slide year-on-year and below the average analyst expectation of closer to $2 billion.
By 0800 GMT, ArcelorMittal shares were down 3.9% at 24.31, up from initial lows and compared to a 1.5% drop in the DJ Stoxx European basic resources index. The shares rose 26% to a nine-month high in a two-week rally that ended on Monday.
“It’s a meagre outlook. There’s recovery, but it’s not as fast and as great as expected,” said Rabo Securities analyst Frank Claassen.
The company’s EBITDA slid 85% in the second quarter to $1.22 billion. The average forecast in a Reuters poll of 12 analysts was $1.17 billion.
ArcelorMittal itself had previously given a guidance range of $1.2-$1.5 billion.
The global downturn has hit demand for steel, an industry often seen as a broad gauge of an economy’s strength, as activity in the key auto and construction sectors has tumbled.
ArcelorMittal made a worse-than-expected net loss of $792 million, with further inventory write-downs and provisions for job cuts.
Destocking Ends, Demand Still Weak
The company and its rivals have felt a double blow as customers opt to run down stocks rather than buy fresh steel, leaving many steelmakers running at half capacity.
However, that destocking is drawing to a close. ArcelorMittal has announced the reopening of three blast furnaces in Europe and one in the United States.
It forecast shipments would be about 1 million tonnes more in the third quarter than the second, raw material costs would be down and average prices would be stable to lower despite improved spot prices, which should have more of an effect in the fourth quarter.
Nippon Steel, the world’s number two steelmaker, reported a quarterly loss on Wednesday on large one-time losses and said it would not pay a first-half dividend.
JFE Holdings, the world’s number five steelmaker, said on Tuesday it had swung to a quarterly loss but forecast a full-year profit.
ArcelorMittal, three times larger than its nearest rival with some 10% of the world steel market, has faced scrutiny over debt driven up by acquisitions, notably the then Mittal Steel’s €26 billion ($37.1 billion) takeover of Arcelor in 2006.
The company’s net debt fell to $22.9 billion at the end of June, from $26.7 billion at end-March and close to its year-end target of $22.5 billion. It has calmed nerves with $11 billion of equity, convertible and bond issues in the past quarter.
It also agreed with lenders earlier this month to relax its covenants on more than $31 billion of credit. It said that meant its net debt /EBITDA limits were now 4.5 times in December 2009, 4.0 in June 2010, reverting to 3.5 times in December 2010.
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First Published: Wed, Jul 29 2009. 01 41 PM IST