By Alex MacDonald
LONDON-- ArcelorMittal, the world's largest steelmaker by
output, is banking on growth in auto makers' demand for steel to
help mitigate rock-bottom iron-ore prices this year after reporting
a narrower net loss in the fourth quarter.
The Luxembourg-based mining and metals group said on Friday that
its net loss fell to $955 million in the fourth quarter compared
with a net loss of $1.23 billion in the same period a year earlier,
despite around $1 billion in charges related to asset impairments
and currency exchange losses. They included a $621 million
write-down at Chinese steelmaker China Oriental Ltd, where it owns
a significant minority stake.
"Operating conditions remain tough [but] we expect steel markets
to continue to improve, particularly for high value-added products
such as automotive," said Lakshmi Mittal, chief executive of the
family-controlled steelmaker.
ArcelorMittal's mining division, typically a reliable source of
profit, turned in an operating loss last quarter following a 45%
decline in iron ore prices which more than offset record high iron
ore output. Falling iron-ore prices generally boost a steelmaker's
profit margins by lowering steelmaking costs but in the case of
ArcelorMittal, it also dents its mining business' profits.
ArcelorMittal is one of the world's largest iron ore producers,
selling nearly two thirds of its output at market prices to other
steelmakers.
The iron-ore price drop largely offset the rewards of several
years of cost cutting, particularly in Europe where it has closed
loss-making mills in recent years to cope with excess steel
production and anemic demand. The European steel division became
the company's largest earnings driver before depreciation costs in
the fourth quarter, posting its fourth consecutive quarterly profit
after a year and a half of restructuring-impaired losses.
ArcelorMittal plans to generate between $6.5 billion and $7
billion in earnings before interest, taxes, depreciation and
amortization this year, after generating $7.24 billion last year,
up 5.1% on year and slightly ahead of analysts' expectations.
ArcelorMittal's Chief Financial Officer Aditya Mittal said the
guidance is based on current steel and iron ore spot prices, the
latter of which is languishing at more than five and a half year
lows.
Arcelormittal plans to boost total steel shipments by 4% to 5%
this year, half of which will come from recent blast furnace
restarts in Brazil and South Africa. It also expects to continue
ramping up iron ore production, in line with other large miners
such as Rio Tinto and BHP while cutting costs. This should help
offset some of the iron ore price decline, but not all.
ArcelorMittal forecasts that global steel demand should grow
about 2% to 2.5% this year, slightly lower than its estimated
growth for last year. Steel demand in all of its key steel markets
should rise by more than 1%, except for the Commonwealth of
Independent States and the U.S.
Arcelormittal expects flat to 1% steel demand contraction in
North America this year due to U.S. inventory destocking after a
steep restocking period last year.
Nevertheless, the steelmaker expects limited steel shipment
growth there due in part to strong automotive demand, the CFO
said.
In the Commonwealth of Independent States, steel demand should
contract by up to 6% due to the continuing fighting in Ukraine. But
the steelmaker has largely circumvented weak demand there by
shipping steel to customers in North Africa and the Middle
East.
CFO Mittal said ArcelorMittal will continue to look at ways to
optimize its portfolio of assets, as evidenced by the sale of its
stake in a U.S. mill last year. The company, however, is open to
mergers and acquisitions: it remains interested in purchasing
privately-owned Ilva, Europe's largest steelworks, although the
Italian government wants to restructure the business first before
allowing it to be sold, the CFO said.
ArcelorMittal reaffirmed its plan to cut its net debt to $15
billion in the medium term, having reduce it to $15.8 billion as of
December end, its lowest level since the merger of Mittal Steel And
Arcelor in 2006.
Write to Alex MacDonald at alex.macdonald@wsj.com
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