ArcelorMittal Says Steel Markets Are Stabilizing as Losses Narrow -- 3rd Update
May 06 2016 - 9:02AM
Dow Jones News
By John W. Miller and Alex MacDonald
LONDON--The world's biggest steelmaker said Friday that U.S. and
European markets are stabilizing after record Chinese exports last
year caused prices to plummet around the globe.
"It's recovery with a pinch-of-salt concern about Chinese
overcapacity," Lakshmi Mittal, chief executive of ArcelorMittal,
said in an interview.
The Luxembourg-based steelmaker, the world's largest by
production accounting for some 6% of global steel output, posted a
net loss of $416 million in the first quarter, compared with a $728
million net loss in the same period a year earlier, missing
analysts' forecasts.
Revenue fell 22% to $13.4 billion, as a result of lower steel
and iron-ore prices as well as lower steel and iron-ore
shipments.
The steel industry has been cyclical since its creation in the
19th century, but the latest downturn has been particularly
pernicious because of China. The country now accounts for half the
world's annual production of 1.6 billion metric tons of steel, and
it has been on an export binge. China last year set a record,
shipping out 100.4 million tons of the metal, more than the U.S.
produced annually during World War II. Last year, only Japan made
more steel than China exported.
As a result, prices fell almost everywhere. "China's dumping
steel and overcapacity has clearly influenced prices," Mr. Mittal
said. "We always believed those price levels were not
sustainable."
The wave of low-cost shipments coming out of China prompted
European Union and U.S. governments to impose import tariffs to
protect their steelmakers. Imports are now falling back in the U.S.
and EU. That along, with falling inventories and strengthening
demand, has helped prices to recover. In the U.S., the benchmark
hot-rolled coil index has now risen 45% to $548 since Jan. 1, after
declining by a third in 2015.
Inventories in the U.S. are now below the historical average,
said Jim Baske, executive vice president for North America. Demand
in the automotive sector is still strong, and there is been a
moderate pickup in construction, he added.
Chinese steel officials have said they need to eliminate 200
million tons of overcapacity. Mr. Mittal said he thought China had
become much more serous about cutting capacity.
Mr. Mittal cautioned that the global steel market remains
fragile given excess steel capacity in China. He urged governments
to remain vigilant about unfair trade, and not to grant China
market economy status, which would make it harder to impose tariffs
on Chinese imports.
The company's mining business has also suffered from the
downturn. Its iron-ore production fell to 14.1 million tons during
the first quarter, down 9.1% from a year earlier.
The narrower net loss stemmed in part from a small
foreign-exchange gain last quarter compared with a foreign-exchange
and net financing loss of $756 million in the same quarter a year
before.
ArcelorMittal earlier this year raised EUR2.8 billion ($3.2
billion) through a rights issue to strengthen its balance sheet
given a protracted steel price rout globally. Other steelmakers
such as Sweden's SSAB AB followed suit.
ArcelorMittal's shares have subsequently rallied after the
rights issue was announced and are up nearly 50% so far this year,
buoyed by a pickup in steel prices in its key U.S. and European
markets as well as China.
The steelmaker expects the impact of rising steel prices to be
fully reflected in its earnings in the second half of the year. The
company kept its 2016 earnings before interest, taxes, depreciation
and amortization forecast at over $4.5 billion.
Jefferies analyst Seth Rosenfeld said he was slightly surprised
that ArcelorMittal didn't raise its guidance although he noted the
company doesn't necessarily need to revise the guidance since it is
open-ended.
Net debt also rose to $17.3 billion as of the end of March,
compared with $15.7 billion at the end of December, because of
seasonal working capital adjustments.
Net debt is forecast to have dropped to $13.3 billion after
taking into account the proceeds from its $3.2 billion rights issue
in April and the roughly $1 billion sale of its 35% stake in
Spanish autoparts manufacturer Gestamp Automoción, the company
said.
Write to John W. Miller at john.miller@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
May 06, 2016 08:47 ET (12:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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