X US Steel Corp

By John W. Miller and Alex MacDonald 

LONDON--Steelmaking giant ArcelorMittal reported a hefty quarterly loss on Friday, blaming in part Chinese steel imports, and said prices might not recover next year without new U.S. steel-import tariffs and curbs in Chinese production.

Luxembourg-based ArcelorMittal, the world's biggest steelmaker by volume, was forced to take a $500 million charge on inventories in its latest quarter. Like peer U.S. Steel Corp., ArcelorMittal said Chinese exports were responsible.

"This is not an economic crisis, it is not a volume crisis, it is an import crisis," ArcelorMittal Chief Financial Officer Aditya Mittal told reporters on Friday.

Chinese steel exports rose 27% to 83 million tons in the first nine months of 2015, compared with 65 million tons in the same period the year before. But that excessive production has been unprofitable. Chinese steel producers lost $8 billion in the first nine months of 2015, the CFO said, citing figures from China's steel association.

ArcelorMittal, which accounts for more than 6% of global production, swung to a loss of $711 million in its third quarter from a profit of $22 million a year earlier. It was expected to lose $184 million, according to a FactSet poll of six analysts. Revenue fell 22% to $15.6 billion.

The pain in the steel industry has been sharp and widespread. U.S. Steel has reported $509 million over three quarters so far this year.

The catalyst is steel prices, which were expected to recover in the second half of this year, but instead have continued to slide. The benchmark hot-rolled coil price in the U.S. is now $393 per ton, down by more than a third since the start of the year.

ArcelorMittal said operating conditions have deteriorated significantly, both in terms of international steel prices, driven by unsustainably low export prices from China, and order volumes as customers adopt a "wait and see" mind-set in case steel prices fall further.

The industry headwinds led ArcelorMittal to suspend its dividend and cut its earnings guidance for the year on Friday. Despite losing money, it still plans to lower its net debt by $1 billion by year-end and said it expects to remain free cash-flow positive this year.

Increased Chinese exports are also having run-on effects, such as depressing the price of scrap metal in the U.S. Chinese steel is so cheap that countries like Turkey are buying it instead of continuing to use American scrap, the company said.

Chinese steel officials say they aren't doing anything improper and that their companies will become profitable when demand recovers.

But demand in the U.S. and Europe, ArcelorMittal's main markets, is already relatively strong, and the company expects improved demand next year, said Chief Executive Lakshmi Mittal. The difference will be supply, and how much China continues to export.

This week, the U.S. Department of Commerce levied preliminary duties on imports of corrosion-resistant steel from China. If more duties are imposed, that will support prices, the chief executive said.

The U.S. is doing a better job of protecting its steel markets. Investment bank Jefferies estimates the U.S. has launched steel trade cases representing 34% of its total steel imports so far this year, while the EU has launched steel trade cases for just 15% of its total steel imports.

"A lot of the trade actions that could be launched could create some value," said Lakshmi Mittal. "The overproduction in China is unsustainable," he added.

Davy Research said the continuing drop in steel prices doesn't bode well for next year's earnings. "Pressure on global pricing, from China in particular, is more than canceling out significant cost-cutting initiatives," said Davy analyst Colin Sheridan, adding he expects downgrades to full-year 2015 and 2016 consensus estimates.

Write to John W. Miller at john.miller@wsj.com and Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

November 06, 2015 14:33 ET (19:33 GMT)

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