By Alex MacDonald
LONDON-- ArcelorMittal, the world's largest steelmaker by
output, is banking on growth in auto makers' demand for steel to
help mitigate rock-bottom iron-ore prices this year after reporting
a narrower net loss in the fourth quarter.
The Luxembourg-based mining and metals group said on Friday that
its net loss fell to $955 million in the fourth quarter compared
with a net loss of $1.23 billion in the same period a year earlier,
despite around $1 billion in charges related to asset impairments
and currency-exchange losses. They included a $621 million write
down at Chinese steelmaker China Oriental Ltd, where it owns a
significant minority stake.
"Operating conditions remain tough [but] we expect steel markets
to continue to improve, particularly for high value-added products
such as automotive," said Lakshmi Mittal, chief executive of the
family-controlled steelmaker.
After six years of consecutive declines, the European car market
improved in 2014 and is set to grow 2% this year, according to car
maker Renault. Meanwhile U.S. auto sales rose 14% in January,
pulling last year's winning streak into this year due to low
gasoline prices and easier access to credit. ArcelorMittal is the
world's number one supplier of flat steel to the global automotive
sector.
ArcelorMittal's mining division, typically a reliable source of
profit, turned in an operating loss last quarter following a 45%
decline in iron-ore prices which more than offset record high
iron-ore output. Falling iron-ore prices generally boost a
steelmaker's profit margins by lowering steelmaking costs but in
the case of ArcelorMittal, it also dents its mining business'
profits. ArcelorMittal is one of the world's largest iron-ore
producers, selling nearly two thirds of its output at market prices
to other steelmakers.
The iron-ore price drop largely offset the rewards of several
years of cost cutting, particularly in Europe where it has closed
loss-making mills in recent years to cope with excess steel
production and anemic demand. The European steel division became
the company's largest earnings driver before depreciation costs in
the fourth quarter, posting its fourth consecutive quarterly profit
after a year and a half of restructuring-impaired losses.
ArcelorMittal plans to generate between $6.5 billion and $7
billion in earnings before interest, taxes, depreciation and
amortization this year, after generating $7.24 billion last year,
up 5.1% on year and slightly ahead of analysts' expectations.
ArcelorMittal's Chief Financial Officer Aditya Mittal said the
guidance is based on current steel and iron ore spot prices, the
latter of which is languishing at more than five and a half year
lows.
Arcelormittal plans to boost total steel shipments by 4% to 5%
this year, half of which will come from recent blast furnace
restarts in Brazil and South Africa. It also expects to continue
ramping up iron ore production, in line with other large miners
such as Rio Tinto and BHP Billiton while cutting costs. This should
help offset some of the iron ore price decline, but not all.
ArcelorMittal forecasts that global steel demand should grow
about 1.5% to 2% this year, lower than its estimated growth for
last year. Steel demand in all of its key steel markets should rise
by more than 1%, except for the Commonwealth of Independent States
and the U.S.
Arcelormittal expects flat to 1% steel demand contraction in
North America this year due to U.S. inventory destocking after a
steep restocking period last year.
Nevertheless, the steelmaker expects limited steel shipment
growth there due in part to strong automotive demand, the chief
financial officer said.
In the Commonwealth of Independent States, steel demand should
contract by up to 6% due to the continuing fighting in Ukraine. But
the steelmaker has largely circumvented weak demand there by
shipping steel to customers in North Africa and the Middle
East.
The chief financial officer said that ArcelorMittal will
continue to look at ways to optimize its portfolio of assets, as
evidenced by the sale of its stake in a U.S. mill last year. The
company, however, is open to mergers and acquisitions: it remains
interested in purchasing privately-owned Ilva, owner of Europe's
largest steelworks, although the Italian government wants to
restructure the business first before allowing it to be sold, he
said.
ArcelorMittal reaffirmed its plan to cut its net debt to $15
billion in the medium term, having reduce it to $15.8 billion as of
December end, its lowest level since the merger of Mittal Steel And
Arcelor in 2006.
Write to Alex MacDonald at alex.macdonald@wsj.com
Corrections & Amplifications
ArcelorMittal forecasts that global steel demand should grow
about 1.5% to 2% this year. An earlier version of this article
incorrectly said it forecasts that global demand would grow 2% to
2.5%. (Feb 13, 2015)
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