MT Arcelor Mittal New

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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