MT Arcelor Mittal New

By Alex MacDonald 

LONDON-- ArcelorMittal narrowed its net loss in the first quarter and forecast improved earnings to come as steel prices begin to recover, but cautioned that excess steel capacity in China still remains a concern.

The Luxembourg-based steelmaker, the world's largest by production accounting for some 6% of global steel output, reported a net loss of $416 million in the three months ended March 31, 2016, compared with a $728 million net loss in the same period a year earlier.

The net loss was worse than analysts' expectations of $319 million, but narrower than last year because of a swing to a small foreign exchange gain compared with a $756 million foreign exchange and net financing loss in the same quarter a year earlier.

Still, the steelmaker suffered a net loss due to a 33% drop in earnings before interest, taxes, depreciation and amortization, or Ebitda, to $927 million after lower steel and iron ore prices and shipments prompted revenue to fall 22% to $13.4 billion over the same period.

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. After taking into account the rights issue in April and the roughly $1 billion Gestamp asset sale, net debt would have dropped to $13.3 billion, the company said.

ArcelorMittal' share were down 4.9% at EUR4.46 ($5.10) a share in midafternoon European trading. Citigroup said in a note that while the first quarter results were broadly in line with expectations investors were likely to react negatively to the higher-than-expected net debt.

"Our results for the first quarter reflect the very tough operating conditions in the second half of 2015," said Chief Executive Lakshmi Mittal. "Since that time we have seen a recovery in spreads in our core markets to more sustainable levels, which is expected to result in improved results in the coming quarters," he said. Mr. Mittal, however, cautioned that the global steel market remains fragile given excess steel capacity in China. He urged governments to remain vigilant about unfair trade.

Steelmakers have been hammered globally by an onslaught of cheap steel exports from China, the world's largest steel producer. China produced more steel than all the other countries combined last year even as steel demand slackened at home. The wave of cheap Chinese steel shipments prompted European Union and U.S. governments to slap import tariffs to protect their steelmakers, but not quickly enough in the EU to stem the bleeding.

ArcelorMittal earlier this year raised EUR2.8 billion, or $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 rallied after the rights issue was announced and are up 55% so far this year, buoyed by a pickup in steel prices in its key U.S. and European markets as well as China.

ArcelorMittal's Chief Financial Officer Aditya Mittal said the price rise has been most pronounced in China, where the government's stimulus package has helped buoy domestic steel demand. The steelmaker now forecasts Chinese steel demand may remain flat this year compared with its previous forecast for an up to 1.5% contraction.

Steel price rises in the U.S. and Europe have also followed suit, with Europe lagging the U.S. due to slower implementation of trade barriers against Chinese steel exports, Mr. Mittal said. Chinese steel exports have fallen quarter-on-quarter but are still up year-over-year, he noted.

Mr. Mittal cautioned that China may be "kicking the can down the road" if it fails to remove its structural excess steel production capacity as a result of the recent government-fueled pickup in steel demand.

Nevertheless, he expects the impact of rising steel prices to be fully reflected in the steelmaker's earnings in the second half of the year, although this year's Ebitda guidance of more than $4.5 billion has been kept unchanged.

Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

May 06, 2016 07:14 ET (11:14 GMT)

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