Steel Mills

ArcelorMittal Lowers Earnings Estimate for FY 2015

Written by Sandy Williams

ArcelorMittal reported a $700 million loss for third quarter which it blamed on falling prices and dumping of steel by China. Third quarter EBITDA was $1.35 billion.

“Operating conditions have deteriorated in recent months, both in terms of the international steel price environment which has been driven by unsustainably low export prices from China and order volumes as customers adopt a “wait and see” mind-set,” said ArcelorMittal in its earnings report. As a result FY 2015 estimated earnings were lowered to $5.2 billion to $5.4 billion from the previous projection of $6 billion to $7 billion. Positive cash flow generation is expected in 2015 with net debt below $15.8 billion.

ArcelorMittal plans to reduce its cash requirements for 2016 by approximately $1 billion. This will be accomplished through lower capex spending, lower cash interest costs, lower cash taxes and suspending dividend for the financial year 2015.

NAFTA steel shipments were stable in Q3 at 5.6 million tonnes, compared to the previous quarter. Flat-product steel shipments increased by 3.1 percent, offset by a 12.2 decrease in long products primarily from the closure of the Georgetown facility in second quarter and lower demand. Improved performance at Calvert helped drive EBITDA earnings to $340 million from $225 million in second quarter. Average steel selling price was $698 per ton, down from $726 per ton in Q2.

NAFTA crude steel production increased 3.5 percent to 6 million tonnes from 5.8 million tonnes in Q2.

Lakshmi N. Mittal, ArcelorMittal Chairman and CEO, said:

“Whilst we have delivered stable EBITDA compared with the second quarter, the already challenging operating conditions have further deteriorated during recent months, largely due to additional declines in steel prices caused by exceptionally low Chinese export prices. Our focus is on ensuring we take all the necessary steps to strengthen our competitiveness in this difficult environment. Measures we have taken so far are yielding results; costs in our mining division have reduced by 17% so far in 2015 versus an initial target of 15%, and net debt is $1 billion lower than a year ago. Whilst we expect market conditions to remain challenging in 2016, we have a number of important programs underway across the business which will structurally improve EBITDA in 2016 and we also expect a significant reduction in our cash requirements.”

“Whilst we are confident our actions are the right ones, there are also important issues for governments to address, specifically relating to unfair trade. We are encouraged by various examples of trade action being initiated in response to dumping, but the process needs to be faster in order to be fully effective.”

During the company earnings call, Lakshmi Mittal expounded on steel demand and exports from China.

“China, the ongoing weakness in real estate and machinery end market has caused a contraction of real demand by around 3% up to 4% this year. China’s steel production is sticky, so exports have increased. Here, the volumes, price, excluding China have declined to less than $300 per ton. But this is not a profitable business model for Chinese mills as they have no structural cost or quantity. This is highlighted by this report that steel prices lost an average of $35 per ton in the third quarter. My view is that this is unsustainable. In order to arrest these losses, steel prices in China need to increase either as a result of improved demand or as a result of production curtailment.”

In the U.S., the company expects to see real and apparent demand pick up as destocking of inventory ends. 2016 growth is forecast at similar rates to 2015. Despite difficult market conditions the NAFTA segment continues to perform.

The company says it feels comfortable and confident about its U.S. upstream operations. “We see the opportunities primarily in the downstream,” said Louis Schorsch, CEO ArcelorMittal Americas. “It doesn’t mean that based on markets up and down and inventory cycles and so on, that you might not temporarily idle a furnace. We have one furnace idled currently. But in terms of structural closures and exiting the business, that’s certainly not something in our expectations or that we’re thinking about or discussing currently.”

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