By John W. Miller and Alex MacDonald
ArcelorMittal, the world's biggest steelmaker, posted its
seventh straight quarterly loss Friday, blaming in large part
higher natural-gas prices and the harsh winter in the U.S. that
delayed shipments.
The Luxembourg-based company said demand is finally firming in
Europe but falling in the former Soviet Union because of the crisis
in Ukraine, where it owns one of the world's largest steelmaking
complexes. It trimmed its 2014 growth estimate for global steel
demand to between 3% and 3.5%, from 3.5% to 4%, reflecting a
construction slowdown in China.
ArcelorMittal, which makes more steel than its top two
competitors combined and accounts for about 6% of the world's steel
output, reported a first-quarter loss of $205 million, or 12 cents
a share, compared with a loss of $345 million, or 21 cents a share,
a year earlier.
Chief Executive Lakshmi Mittal said in an interview that steel
demand in Russia and other former parts of the Soviet Union would
contract by 2% this year instead of growing by 2.5%, its previous
forecast. ArcelorMittal paid $5 billion in 2005 to buy the largest
steel plant in Ukraine, which employs 37,000 people. Mr. Mittal
said there have been no production disruptions at the plant to
date.
"We are continuing to produce there what we are supposed to
produce," he said, though noting that "the situation is of concern"
given the country's turmoil. "Our information is limited," Mr.
Mittal said, adding that he isn't getting involved in detailed
discussions with government officials.
Although its losses narrowed, ArcelorMittal said its U.S.
operations were hit hard by the extreme winter weather, which
delayed shipments and boosted prices of natural gas, a key input
for steelmakers.
"Sixty percent of [the impact] is energy prices, which had been
a positive for us, and we had some disruptions in production and
shipments, " said Lou Schorsch, CEO for ArcelorMittal America. He
said the company suffered more than its rivals because two-thirds
of its U.S. operations are in the Chicago area, which endured a
brutal winter.
Mr. Schorsch said his division would consider hedging natural
gas or building up more inventory. "But those things have a cost,
and there's the question of whether this is a one-in-50 years
event," referring to the unusually cold winter, he said. "Is it
really worth it to buy insurance for the other 49 years if this
isn't going to happen again?"
Although there are some encouraging trends in the global steel
business, such as rising demand from U.S. auto makers, overcapacity
is constraining profits.
"Global steel-sector profitability will continue to be hampered
by significant excess production capacity, weak pricing power and
weak margins" in the near-term, Jefferies analyst Seth Rosenfeld
said.
Steel exports from China increased 36% in April, compared with a
year ago but Mr. Mittal said he wasn't particularly concerned.
Chinese exports target the South Asia and North African markets and
a different product segment than that served by ArcelorMittal
exports, he said.
Mr. Mittal said Chinese steel output growth is likely to
decline. "Chinese companies are losing money, and there is pressure
to improve environmental performance," he said, noting that the
government has announced capacity cuts by 2017
ArcelorMittal's volumes increased in the recent quarter, with
shipments of steel up 2.4% at 21 million tons, and iron ore rising
28% to 9.3 million tons.
Europe was an unusual bright spot in ArcelorMittal's earnings
report Friday. The steelmaker, which has reduced capacity on the
continent, closing plants in France and Belgium at great expense,
recorded its first operating profit there-- $80 million--after six
consecutive losing quarters. Production of sheet steel, mainly for
the auto industry, rose 4.3% to 10.9 million tons.
"A lot of things are changing in Europe," Mr. Mittal said. "We
would assume" every quarter from now on should be profitable, he
said.
Net debt rose to $18.5 billion at the end of March from $16.1
billion in December due to higher working-capital demands, but the
company said it was sticking to its target to reduce net debt to
$15 billion.
Write to John W. Miller at john.miller@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
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