ArcelorMittal Loss Worse Than Expected -- 2nd Update
November 06 2015 - 2:48PM
Dow Jones News
By John W. Miller and Alex MacDonald
LONDON--Steelmaking giant ArcelorMittal reported a hefty
quarterly loss on Friday, blaming in part Chinese steel imports,
and said prices might not recover next year without new U.S.
steel-import tariffs and curbs in Chinese production.
Luxembourg-based ArcelorMittal, the world's biggest steelmaker
by volume, was forced to take a $500 million charge on inventories
in its latest quarter. Like peer U.S. Steel Corp., ArcelorMittal
said Chinese exports were responsible.
"This is not an economic crisis, it is not a volume crisis, it
is an import crisis," ArcelorMittal Chief Financial Officer Aditya
Mittal told reporters on Friday.
Chinese steel exports rose 27% to 83 million tons in the first
nine months of 2015, compared with 65 million tons in the same
period the year before. But that excessive production has been
unprofitable. Chinese steel producers lost $8 billion in the first
nine months of 2015, the CFO said, citing figures from China's
steel association.
ArcelorMittal, which accounts for more than 6% of global
production, swung to a loss of $711 million in its third quarter
from a profit of $22 million a year earlier. It was expected to
lose $184 million, according to a FactSet poll of six analysts.
Revenue fell 22% to $15.6 billion.
The pain in the steel industry has been sharp and widespread.
U.S. Steel has reported $509 million over three quarters so far
this year.
The catalyst is steel prices, which were expected to recover in
the second half of this year, but instead have continued to slide.
The benchmark hot-rolled coil price in the U.S. is now $393 per
ton, down by more than a third since the start of the year.
ArcelorMittal said operating conditions have deteriorated
significantly, both in terms of international steel prices, driven
by unsustainably low export prices from China, and order volumes as
customers adopt a "wait and see" mind-set in case steel prices fall
further.
The industry headwinds led ArcelorMittal to suspend its dividend
and cut its earnings guidance for the year on Friday. Despite
losing money, it still plans to lower its net debt by $1 billion by
year-end and said it expects to remain free cash-flow positive this
year.
Increased Chinese exports are also having run-on effects, such
as depressing the price of scrap metal in the U.S. Chinese steel is
so cheap that countries like Turkey are buying it instead of
continuing to use American scrap, the company said.
Chinese steel officials say they aren't doing anything improper
and that their companies will become profitable when demand
recovers.
But demand in the U.S. and Europe, ArcelorMittal's main markets,
is already relatively strong, and the company expects improved
demand next year, said Chief Executive Lakshmi Mittal. The
difference will be supply, and how much China continues to
export.
This week, the U.S. Department of Commerce levied preliminary
duties on imports of corrosion-resistant steel from China. If more
duties are imposed, that will support prices, the chief executive
said.
The U.S. is doing a better job of protecting its steel markets.
Investment bank Jefferies estimates the U.S. has launched steel
trade cases representing 34% of its total steel imports so far this
year, while the EU has launched steel trade cases for just 15% of
its total steel imports.
"A lot of the trade actions that could be launched could create
some value," said Lakshmi Mittal. "The overproduction in China is
unsustainable," he added.
Davy Research said the continuing drop in steel prices doesn't
bode well for next year's earnings. "Pressure on global pricing,
from China in particular, is more than canceling out significant
cost-cutting initiatives," said Davy analyst Colin Sheridan, adding
he expects downgrades to full-year 2015 and 2016 consensus
estimates.
Write to John W. Miller at john.miller@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
November 06, 2015 14:33 ET (19:33 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Arcelor Mittal (NYSE:MT)
Historical Stock Chart
From Mar 2024 to Apr 2024
Arcelor Mittal (NYSE:MT)
Historical Stock Chart
From Apr 2023 to Apr 2024