ArcelorMittal Earnings Beat Expectations -- 2nd Update
July 29 2016 - 9:51AM
Dow Jones News
By John W. Miller
ArcelorMittal, the world's biggest steelmaker, on Friday
reported its best quarter in five years as steel markets in the
U.S. and Europe improved thanks to new protective import tariffs,
stronger demand and shrinking inventories.
Luxembourg-based ArcelorMittal said net profit had increased to
$1.1 billion in the second quarter, up from $179 million a year
before. The last quarter this good was a $1.5 billion profit in the
second quarter of 2011, the company said.
Steel prices are rising as builders, auto makers and appliance
manufacturers buy more of it. ArcelorMittal said its total
shipments to customers rose 2.9% to 22.1 million tons, up from 21.5
million tons in the first quarter. The trend is eating up global
steel inventories that fattened up in 2015 by Chinese oversupply
and order cancellations by struggling oil and gas drillers.
The company expects markets to remain strong in the second half
of the year.
The steel industry has become the darling of presidential
candidates in the U.S., and ArcelorMittal, which has extensive
operations in Indiana and Alabama, stands to benefit, Chief
Executive Lakshmi Mittal said in an interview.
"Both candidates have promised to support new infrastructure and
manufacturing jobs," he said.
The biggest challenge ArcelorMittal and other steelmakers in the
U.S. and Europe face is competition from China, which has pressured
the market by ramping up production and exports. Chinese steel
exports rose 11% to 51.6 million tons in first half of the
year.
The Chinese economy is improving, with automotive and
construction companies soaking up more steel, said Mr. Mittal. "But
really, they have to reduce production."
China had announced some cutbacks, but in June the country's
output rose 1.7% to 69.5 million tons when compared with the
prior-year period, according to the latest data from the World
Steel Association.
The U.S. government imposed new import tariffs this year,
creating a more closed market. Steel imports into the country were
down 20% in the first five months of 2016, and the U.S. benchmark
hot-rolled coil index has risen to $614 per ton since the start of
the year, a 63% increase.
In its North America segment, ArcelorMittal's earnings before
interest, taxes depreciation and amortization rose to $513 million,
more than double the $225 million it reported in the second quarter
of 2015.
Other steelmakers in the U.S. are also doing better. Nucor
Corp., now the U.S.'s biggest steelmaker by output, last week said
net profits rose 87% to $233.8 million, up from $124.8 million a
year earlier. Steel Dynamics Inc. reported its net profit more than
doubled to $142 million from $53 million the year before, which
Chief Executive Mark Millett credited to declining imports and
inventory levels balancing "with current demand requirements."
U.S. Steel Corp., which lost $1.5 billion last year, lowered its
net loss in the second quarter to $46 million from $261 million in
the same period a year before.
In Europe the market is also improving, but as not as
swiftly.
ArcelorMittal's European earnings ticked up 6.6% to $725
million, in part because European steel prices haven't received the
benefit of protection from imports. The European Union is moving
toward new tariffs, but its decision-making system, with so many
countries participating, is more complex than the U.S.
Last month, the company teamed up with Italian steelmaker
Marcegaglia to bid for the troubled Ilva steel plant, Europe's
largest single steel facility, which is currently held under
special administration by the Italian government.
After a rotten 2015, ArcelorMittal earlier this year raised $3.1
billion in a rights issue to strengthen its balance sheet. Shares
subsequently rallied and are up nearly 90% so far this year, buoyed
by higher steel prices in its key U.S. and European markets in the
second quarter. The company said it had cut its debt level to $12.7
billion, down from $17.3 billion on March 31.
Alex MacDonald contributed to this article.
Write to John W. Miller at john.miller@wsj.com
(END) Dow Jones Newswires
July 29, 2016 09:36 ET (13:36 GMT)
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