By Alex MacDonald
LONDON-- ArcelorMittal said Friday it is in talks with labor
unions to restructure its U.S. and South African steel operations,
which have suffered from anemic steel demand and increased steel
import pressure--most notably from countries such as China--and
weaker steel prices.
The talks are focused on the potential closure of the company's
Vereeniging mini-mill in South Africa and boosting the productivity
of its finished steel operations in the U.S.
"Clearly people are [going to be] affected," Chief Financial
Officer Aditya Mittal told reporters, referring to the proposed
U.S. restructuring proposal. He said the company would jointly
announce the proposal with the union sometime in the third
quarter.
ArcelorMittal, the world's largest steelmaker, accounting for
some 6% of global production, reported a swing to a small net
profit of $179 million in the second quarter from a net loss of
$728 million a year earlier. The profit was largely due to foreign
exchange movements which masked a 1.6% drop in its earnings before
interest, taxes, depreciation and amortization to $1.4 billion and
a 1.3% drop in revenue to $16.9 billion. Ebitda fell because of
lower iron ore and steel prices as steel demand in several of the
company's key regional markets remained weak.
Europe was the notable exception. Profit margins rose there in
the second quarter, despite lower prices, as demand continued to
recover and it reaped further rewards from several years of
restructuring that included shutting loss-making blast
furnaces.
The company wants to implement a version of that restructuring
plan in the U.S. but focused on steel finishing operations rather
than blast furnaces, Mr. Mittal said.
"In the U.S., shipments are not off 2008 levels by 25% where
they were in Europe. Europe required primary capacity changes. In
the U.S., it's more how do we further improve the productivity and
cost performance of our finishing operations," he said.
ArcelorMittal employs more than 20,000 people at 28 operations in
the U.S. with an additional 1,200 in research, development, sales
and company offices.
U.S. steelmakers have been hit by a wave of steel imports,
particularly from China, as the Asian economy cools. China buys
roughly half the world's steel, so any hiccup matters. But not all
the imports into the U.S. come from China. Many are displaced from
countries where China has grabbed market share. ArcelorMittal has
responded by joining other steelmakers in filing trade protection
cases while cutting costs at home.
Mr. Mittal said underlying U.S. steel demand is still strong and
forecast to grow 2.3% this year due to strong construction and
automotive steel demand. Nevertheless, continued U.S. steel
destocking means North American apparent steel demand--which takes
into account consumption of domestic and net imported steel--is
forecast to shrink by as much as 4% this year compared with a
previous expectation for up to a 3% contraction, according to the
company.
The Vereeniging Steel mini-mill ArcelorMittal is thinking about
closing produces about 0.4 million tons of crude steel annually.
Mr. Mittal said a final decision will depend on whether steel
import pressures abate. ArcelorMittal directly employed 1,200
people there.
Mr. Mittal said that Chinese steel exports remain a threat to
the global steel market, although he noted the country's monthly
steel exports are falling, with nearly half of the country's
steelmakers in the red.
ArcelorMittal reaffirmed its plan to generate Ebitda between $6
billion to $7 billion this year compared with $7.24 billion last
year, despite cutting its global steel demand growth expectations
to no growth this year and a contraction in China, the first since
1995.
The second half is forecast to be better than the first half
because of increased steel shipments from Europe and Brazil where
weakening currencies are making it easier to export steel and a
forecast rise in U.S. demand, said ArcelorMittal's Chief Executive
Lakshmi Mittal.
Write to Alex MacDonald at alex.macdonald@wsj.com