ArcelorMittal Swings to Profit, Warns on Costs, Slack U.S. Demand -- Update
November 08 2016 - 4:24AM
Dow Jones News
By Alex MacDonald
LONDON-- ArcelorMittal swung to a net profit in the third
quarter after cost reductions helped offset a drop in revenue, but
the steel giant cautioned that higher coking-coal prices and
falling U.S. steel prices would crimp profitability in the current
quarter.
The Luxembourg-based steelmaker, the world's largest by
production accounting for some 6% of global steel output, reported
a better-than-expected $680 million in net profit in the three
months to end-September, a turnaround from an impairment-weighted
$711 million net loss in the same period a year earlier.
ArcelorMittal didn't report any exceptional charges in the third
quarter.
A 40% rise in earnings before interest, taxes, depreciation and
amortization to $1.9 billion, despite a 6.8% drop in revenue to
$14.52 billion, came in short of analysts' expectations of $1.96
billion, according to a FactSet poll of 10 analysts.
"Our third quarter results reflect the progress the company is
making to improve the underlying performance of the business, as
well as improved market conditions since the start of the year,"
ArcelorMittal Chief Executive Lakshmi Mittal said on Tuesday.
"Looking ahead, while real demand remains stable, we will be
impacted by the unexpected significant increase in the price of
coal," Mr. Mittal said.
Prices of coking coal, one of the main ingredients in
steelmaking, have nearly tripled to around $236 a metric ton in the
past five months on declines in output in China and Australia,
partly related to poor weather.
The family-controlled steelmaker's return to profit vindicates
renewed investor confidence in the company. The stock price has
more than doubled so far this year after ArcelorMittal tapped
shareholders for cash with a EUR2.8 billion ($3.1 billion) rights
issue earlier this year to shore up its balance sheet after a slump
in steel prices last year. Higher steel prices in its main
markets--the U.S., Europe--and in China have provided some respite
this year.
The renewed pressure on ArcelorMittal's costs still coincides
with a mixed global outlook for steel demand. ArcelorMittal's
shares fell 4% to EUR5.88 in early European trading.
Mr. Mittal said he now expects a 0.5% rise steel demand in China
this year after previously forecasting a decline, with orders
helped by home building and government-backed infrastructure
projects.
The outlook for steel demand in the U.S. is less rosy than it
was earlier this year. Customers have continued to run down
inventory amid still slack demand from the energy sector. The
Commerce Department on Monday launched two new investigations into
whether Chinese steelmakers are shipping metal to the U.S. via
Vietnam to evade U.S. import tariffs.
In the third quarter, ArcelorMittal reported improved
profitability in all of its steel segments, except Brazil, helped
by cost savings including the renegotiation of U.S. employee
benefits in the second quarter.
In Brazil, typically a significant contributor to the
steelmaker's profit, a protracted recession weighed on steel demand
though ArcelorMittal said there are signs of recovery with a
quarter-on-quarter rise in steel prices there.
ArcelorMittal's mining division, another important contributor
to earnings, reported higher profit on higher iron-ore prices and
lower unit costs which more than offset lower output from Ukraine
and Liberia.
Management attributed the fall in third-quarter revenue to a
3.8% drop in steel shipments to 20.3 million tons and lower average
selling prices for steel.
"While expectations are for steel prices to align with the
increased costs, in the interim the higher coal price will impact
steel spreads and fourth quarter performance," Mr. Mittal said.
Write to Alex MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
November 08, 2016 04:09 ET (09:09 GMT)
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